• Wed. Sep 21st, 2022

SoFi stock heads for best day in nearly a year – bank approval hailed as ‘significant’ driver

ByElla E. Kidwell

Jan 19, 2022

Shares of SoFi Technologies Inc. are on track for their best day in nearly a year after analysts spoke with bullish views on the company’s new banking leg.

The company announced Tuesday evening that it had obtained approval from the Office of the Comptroller of the Currency and the Federal Reserve for a banking charter, which SoFi SOFI,
plans to help it offer better interest rates on lending products and supplement its portfolio of fintech offerings.

SoFi shares rose 16.7% in Wednesday afternoon trading and are on track for their biggest one-day percentage gain since Jan. 29, 2021, when they rose 24%.

“The moment we’ve all been waiting for has finally arrived,” wrote Sean Horgan, analyst at Rosenblatt Securities. He predicts consensus estimates will “rise significantly” once analysts take into account the charter’s expected financial benefits.

“Specifically, we are increasingly optimistic about SOFI’s first choice in 2022, given both the direct benefits (i.e. lower cost of capital, increased NIM [net-interest margin]) and the perquisites (i.e. higher interest rates) of becoming a national bank,” he wrote.

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Shares of SoFi have been under pressure in recent months, falling 31% in a three-month period as fellow newly public fintech players Robinhood Markets Inc. (down 65%) HOOD,
and Marqeta Inc. (down 45%) MQ,
also went through difficult times. But SoFi might be able to part ways with that crowd in time, Oppenheimer analyst Dominick Gabriele wrote, by gaining more traction with institutional investors.

“Some investors were skeptical of SOFI’s ability to obtain this charter and so it’s probably a welcome surprise,” he wrote. Gabriele called the charter “a significant and tangible checkpoint in achieving SOFI’s ultimate goals of increased consumer engagement and the competitive advantages that SOFI ultimately seeks to achieve.”

Morgan Stanley’s Betsy Graseck was also bullish, writing that charter banking could boost SoFi’s profitability in several ways. The company will be able to offer more attractive deposit products while obtaining less expensive financing and it will be able to increase its net interest income by holding loans longer, she wrote. With its enhanced capabilities, SoFi would also have the potential to gain new customers and thus increase the base to which it can sell products.

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However, the charter is still only part of its “upside” scenario, not its “baseline” scenario, as it still wants to “understand the speed and pace of banking product rollout.” Graseck also has questions about the ultimate impact of charter approval on SoFi’s cryptocurrency ambitions given restrictions on banks’ ability to provide crypto transactions.

“If SoFi is to exit crypto, it partially offsets the acceleration in revenue streams resulting from higher deposit growth, faster account growth, and increased net interest income,” Graseck said in his note to clients. The company has at least two years to comply with the crypto restrictions imposed on banks, and it is possible that the rules will change over time, she noted.