Research report: Merchants Bancorp (NASDAQ: MBIN)


We are short Merchants Bancorp (NASDAQ: MBIN), because our investigation into this lender uncovered that MBIN has been aggressively expanding its assets base by making bridge loans to mortgage fraudsters, state-barred real estate investors, and negligent landlords. Now, the results of this amoral approach are coming home to roost.

Reckless expansion and commercial real estate risk

  • Claiming to be different from other banks facing over-exposure to risky commercial property, at 411%, MBIN actually has one of the highest CRE concentration ratios in the US.
  • The most significant expansion has taken place in MBIN’s multifamily and healthcare loan book, growing from $529 million in 2017 to $6.6bn in Mid-2024 – i.e. multiplying its bridge loan portfolio by a factor of eleven in less than seven years.
  • In a development which has thus far gone unnoticed, MBIN has used billions of dollars in brokered deposits to expand its loan book recklessly in the post-Covid market. Its share of brokered deposits to total deposits grew from 5% to 41% in just two years.
  • Given that 99.98% of MBIN’s $6 billion of brokered deposits have a maturity of less than one year, there is a maturity mismatch between MBIN’s CRE loan portfolio and brokered deposits. We believe MBIN will have a significant liquidity problem if only a small percentage of the $6 billion in brokered deposits flows out.

Bad credit skyrocketing – and set to shoot even higher

  • When a bank focuses aggressively on expanding its loan book and relies on brokered deposits, it makes loans to people it shouldn’t be making loans to. Don’t take our word for it: that’s an official FDIC position. And that’s exactly the case with MBIN.
  • As a result, in just the last two years, delinquent loans have mushroomed from $4 million to $241 million in 2Q24 – with more to come as even poorer-quality bridge loans mature.
  • MBIN modified loans totaling $186 million in 2Q24 alone and $31 million of these modified loans are already 90 days past due again.
  • As if all this wasn’t serious enough, the real red flag is that, at 56.5% coverage ratio, MBIN’s allowance for loan losses doesn’t even cover the current non-performing loans.

Loans granted to bad actors

  • MBIN has lent money to landlords who have been sanctioned by HUD, prosecuted by State Attorneys General, and sued by previous lenders.
  • One borrower, Aron Puretz, has pleaded guilty to $55 million mortgage fraud conspiracy and appears in MBIN’s books with outstanding loans of $55.8 million.
  • Another borrower, Green National, was held in criminal contempt of court in New York; at least one property was removed from the HUD housing assistance program in Ohio and labeled “unfit for habitation.” MBIN still holds $18 million of Bridge-to-HUD loans to Green National.
  • Another borrower, Goldner Capital Management, recently filed for bankruptcy after dozens of its senior living facilities ran into trouble. We believe MBIN still has $44 million in loans to Goldner on its books.

Photos show mortgaged properties left in disrepair

  • Left to fall into dilapidation, many properties previously owned by Puretz sold for up to 70% less than the outstanding mortgage: on this basis, we estimate a loss of around $27.9 on MBIN’s loans to Puretz alone.
  • Meanwhile, Green National’s properties in Ohio have been condemned unsafe, with one contractor concluding that […] the three buildings are beyond repair or rectification” and that work “[…] will cost well over what the property is worth.” In our opinion, the loans must surely end in default.
  • In the Dickensian real-estate portfolios of Puretz, Green et al., there are no picket fences, but rather dilapidated hallways and broken elevators.

Woefully inadequate provisions and hedges for loan defaults

  • In our opinion, MBIN’s ACL provisions and past credit risk transfers do not represent sufficient coverage and won’t shield the lender from the bad decisions it has taken. We estimate a shortfall of $150 million.
  • Further, we uncovered that the bank has transferred some of its riskiest loans back onto its balance sheet.

Perceived as a fiscally conservative bank with a clear moral compass, MBIN is approaching a moment of truth. In our opinion, due to the large amount of brokered deposits, concentration in CRE, bridge loans backed by dilapidated properties, mushrooming NPLs, and insufficient credit loss provisions, MBIN’s stock should not be trading at a 42% premium to its book value.


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