Short Seller Who Called Goeasy Crash Praises ‘Come Clean’ Moment

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(Bloomberg) — Canadian subprime lender Goeasy Ltd. disclosed hundreds of millions of dollars in loan losses last week, sending its stock plunging. For Victor Bonilla, who had warned about the risks tied to the company’s financing business in September, it was time for a victory lap.

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Bonilla, the short seller at Florida-based Jehoshaphat Research firm, called out Goeasy, saying it was holding C$300 million ($219 million) in improperly delayed credit losses and had unreported delinquencies buried in the balance sheet. Now after the company’s latest update, Bonilla is striking a positive tone: “My impression is that they’ve come clean about it.”

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It’s been a prescient call, albeit months in the making. Goeasy shares took a leg lower after Bonilla published his bearish note in September. While the lender denied the claims at the time and reaffirmed its outlook, the stock took another hit in November after the company missed analyst estimates in the third quarter amid higher-than-expected loan-loss provisions.

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Then shares sank 57% last Tuesday, after Goeasy disclosed C$331 million in net charge-offs for the fourth quarter, including C$233 million in write-downs tied to consumer loans, interest and fees from its LendCare Holdings unit. The firm also announced an overhaul that would revise past disclosures of LendCare payments, a plan to stabilize the business with a focus on direct-to-lending and confirmed Felix Wu as permanent chief financial officer.

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All in, the stock is down more than 80% since the Jehoshaphat short report. Goeasy did not comment for this story.

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Bonilla said the company’s latest announcement may put it back on the right track and he’ll be watching its fourth-quarter results on March 25. 

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“The new management team has come out and I think they’ve said: ‘We’ve got to clean up this mess, we’ve got to begin the process of reestablishing credibility with the market.’ And I think they’re doing that,” Bonilla said in an interview. 

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Goeasy said in the update last week it now expects its net charge-off rate will reach the mid-teens this year, matching Bonilla’s 15% estimate. 

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Bonilla, who also works as the chief investment officer at Carrollwood Capital Management LP in Tampa, Florida, said he’d be “very surprised” if there were more shoes to drop, arguing that management has made a “pretty honest attempt” at cleaning things up. 

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Still, while he’s optimistic, he’s not bullish. He hasn’t taken a long position in Goeasy and said in a post on X last week that it would need a total re-underwriting before it could even be considered worth buying.  

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Bonilla began his deep dive on Goeasy when he noticed the rapid run-up in the company’s loan book and a relatively low delinquency rate for a subprime lending firm. 

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He made a similar bearish prediction on Chinese power tool-maker Techtronic Industries Co. Ltd. in February 2023, saying the firm’s earnings would fall short of expectations over the year as the company wasn’t clearly stating the higher expenses from de-stocking inventory. About six months later, shares of the Hong Kong-based company dropped 17% after the firm reported weaker results in the first half of the year due to higher expenses.

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Jehoshaphat’s team consists of Bonilla and one other full-time analyst, as well as a few consultants who assist on projects.

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Bonilla made it clear he has no issue with subprime lending as a business — or Goeasy in particular. He said he was “open-minded and optimistic” about Goeasy’s fourth-quarter results if the new management comes out with fully transparent accounting. 

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“I want to see this company survive also because there’s not a lot of options for people in Canada with limited access to credit,” Bonilla said. 

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