New auction IPO coming from Internet bank

WASHINGTON (Dow Jones/AP) - An Internet bank is the latest entrant in the brave new world of auction-based initial public offerings.

San Diego-based BofI Holding Inc., holding company for Bank of Internet USA, is expected to sell 2.25 million shares of stock at a range of $9 to $13 a share in coming weeks. But unlike a traditional IPO, in which underwriters set the final share price by privately gauging investor interest, BofI is planning to follow in Google Inc.'s footsteps and run an auction for its stock through investment bank WR Hambrecht & Co.'s auction process.

After Google's closely watched debut last summer, all eyes have been fixed on investment-research company Morningstar Inc., which is expected to do an auction IPO in coming months. But BofI Holding's deal has slipped onto the IPO calendar ahead of Morningstar.

Auction IPOs are touted as a fairer way to distribute shares to a broader segment of the marketplace, and are supposed to generate the maximum amount of capital for issuers while charging lower underwriting fees than traditional IPOs. But the auction market has been slow to take off, with some investors grumbling that Google's process was cumbersome and didn't accomplish broad distribution or maximum capital.

BofI's auction certainly won't be anywhere near as closely watched as Google's or Morningstar's, although all three have strong Internet presences. The federal savings bank, launched in 2000, operates primarily through the Internet with one "bricks and mortar" location in San Diego. It focuses on retail banking and loans, and has 24 employees.

BofI's performance since its inception has been good. It doubled its total assets over the last two years, and grew its total deposits by 76 percent during the same time. Net income rose 18 percent last year.

Most of the money raised by the bank is aimed at adding more capital to its coffers so it can continue to grow its business, including through more lending activities.

But like many retail-focused banks, its main profit driver is net interest income, which could be negatively affected by changing interest rates. And while Internet banking without the added expense of branches seemed like a revolutionary idea a decade ago, now most well-known traditional banks also offer Internet banking - and have more brand recognition among consumers.

And then, of course, there are the risks associated with the auction process itself. Google ended up cutting its price after the auction closed and saw an 18 percent first-day gain over the offer price, a pop that wasn't supposed to happen after an auction. BofI is no Google, and the bank warns prospective investors that, if they are after short-term gains, they shouldn't bid in the auction.