There are only three banks in America who have
(a) a market capitalisation greater than $1 billion.
(b) a price to tangible book greater than three, and
(c) a price to historic earnings greater than twenty.
These are the most expensive banks in America. The raw data set is here (courtesy Capital IQ).
When you pay absolute top-dollar for a bank stock you need to be getting something special - either a better franchise, better management or the like. There has to be something that sets your bank apart from the run-of-the-mill franchises.
Otherwise - dear shareholders - your investment lies somewhere in the range between mere overpayment and being outright ripped off.
Bank of the Internet (BOFI) is one of the three highest priced banks in America.
There is a "story" about what you are getting - a high growth ultra-low cost internet franchise.
But this blog post is not about the "story" - its about the reality. The reality is you are getting a 2005-style jumbo mortgage lender (with other odd high risk loans) funded primarily by high cost brokered deposit.
These are some examples from BofI's correspondent websites to explain what the really do. This one describes BofI as home for "portfolio Niche Jumbo Lending".
The money quote: "The majority of our loans are approved with either a credit or collateral exception".
In other words this is an exception lender. The exceptions are to their stated underwriting standards.
And because it lends by exception you are critically dependent on who is approving the exception loans.
Chasing through LinkedIn and other sources it appears that many of the people who approve the exceptions are from IndyMac and Thornburg Mortgage - both bankrupt jumbo mortgage lenders.
Whatever: here are a few more adverts for BofI Federal Bank - these are adverts distributed to mortgage brokers:
For those who don't read the pictures it says "Self employed artist wants to buy a studio in New York. BOFI Federal Bank can do that."
The pic is of an exceptional artist. He throws pain and there is none on his clothes. And there is more in this advert:
If you are a self-employed artist I guess they offer you an "exception".
Indeed they make a thing of it. Exception lending is - to quote the advert - an "art". And following LinkedIn we can see the artists come from IndyMac and Thornburg Mortgage...
John
