Shares of Axos Financial (NYSE: AX) fell 10.3% in March, according to data provided by S&P Global Market Intelligence. A combination of company-specific issues and broader concerns about the U.S. economy and how the Federal Reserve would react weighed heavily on the stock.
Axos, which until last year was known as Bank of the Internet, disclosed in a March 8 regulatory filing that its Axos Clearing unit had advanced $16.5 million to an unnamed correspondent customer to cover losses stemming from unauthorized securities trades by one of the client's employees. Axos Clearing holds $1.4 million of that customer's liquid assets to use as recovery, but the bank said it was uncertain it would receive repayment of the remaining $15.1 million.
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Shares of the bank also traded down later in the month, along with other financial stocks, after the Federal Reserve took an unexpected dovish turn, throwing future rate hikes into doubt. The losses in bank stocks continued as 10-year Treasury bond yields fell below the yields on a 3-month Treasury, meaning the yield curve was inverted for the first time since 2007. Investors often view an inverted yield curve as a sign of economic trouble on the horizon.
Axos had a great run, with shares doubling in value during a two-year period ending in June 2018, but the stock's performance since then has been dismal. Shares are down 30% since June. As the company has grown, it has faced some missteps that have confused investors, and the latest issue with its recently acquired clearing unit is likely to lead to more questions about whether Axos is growing too fast.
The shares have recovered much of the March loss in the first week of April, trading up 6.8% so far this month. This is a company with an attractive cost profile relative to other financial institutions and big plans for expansion. It's up to management to prove to investors it can avoid unexpected stumbles as the business grows.
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