I Have a Feeling This Won’t End Well

I have a feeling that this won’t end very well for this particular bank, BOFI Federal Bank. I don’t know if the bank actually follows through with their campaign, but if they do history is not on their side.

It’s one of the hottest bank on the market right now. It’s trading at a very high multiple of 20x trailing P/E and 3x book value. To compare, Citigroup just released their 1st quarter numbers and they are very profitable but the stock is trading like its dead.

The following post is not an analysis of BOFI but a focus on its ad campaign. BOFI targets non-qualifying folks who they perceive to be low risk. Non-qualifying = you can’t borrow money at a traditional bank because you don’t meet the lending criteria.

There’s a mega collection of posters like the ones below here.

“No jobs, no income, no problem”. The following campaign is a nice flashback to 2006.

“New draft pick wants to buy luxury home”. I would estimate that 90% of the time this will end in a disaster. I’m pretty sure Johnny Manziel is a client. And even if the prospect becomes successful, football and basketball players are among the worst people you can lend money too with a very high rate of bankruptcy.

If UFC keeps paying the fighters at the current rates our poster boy probably qualifies to buy a dog house. Except in this ad, the mma guy is getting a martial arts studio, so there’s a possibility of extra income if it’s a public studio with paying members. If not, I’m not sure how well the bank can sell a mma studio.And if you ever wonder what’s an asset depletion income qualification loan? It’s for individuals who are asset rich but don’t declare enough income. The lender takes the asset into consideration when calculating income.

This is an ad of a very talented artist working on a masterpiece. If an artist ever shows me that piece of art, it’s an automatic sign that you should throw money at him, especially if he’s buying in New-York. BOFI is a bank that’s very open minded that knows and understand culture.

BOFI Federal Bank is an Internet bank. It doesn’t have a physical branch network. They sell their products through affiliates and third-parties partners. There BOFI’s cost are very low compared to a traditional bank. It’s growing really fast and making money, which explains their rich valuation multiple. However, with such low lending standards and probably a high risk portfolio of loans, I wouldn’t expect this bank to last forever. On the extreme opposite, Cullen/Frost Bankers Inc., a Texas bank, has been around for over 100 years. It’s not a sexy cool bank, but it’s still around to rewarding shareholders. It has seen it shares of economic crisis, wars, and oil boom and busts. The company is also one of the few financial institutions we know of that did not reduce its dividend during the financial crisis of 2008/2009.

My point is to be skeptical when investing in banks with aggressive lending activity. You might make money for a few years until it hits a bump on the road. It’s usually better to avoid these kind of companies.