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The Ratings Game

Jan. 20, 2022, 8:27 a.m. EST

SoFi stock shoots toward best day in nearly a year —banking approval cheered as ‘significant’ driver

By Emily Bary

SoFi Technologies Inc. shares are on track for their best day in nearly a year after analysts chimed in with upbeat views on the company’s new banking milestone.

The company announced late Tuesday that it obtained approval from the Office of the Comptroller of the Currency and the Federal Reserve for a banking charter, which SoFi (NAS:SOFI) expects will help it offer better interest rates on lending products and add to its portfolio of fintech offerings.

Shares of SoFi are up 16.7% in Wednesday afternoon trading and on track for their largest single-day percentage gain since Jan. 29, 2021, when they rose 24%.

“The moment we have all been waiting for has finally arrived,” wrote Rosenblatt Securities analyst Sean Horgan. He anticipates that consensus estimates will “move substantially higher” once analysts factor in the expected financial benefits of the charter.

“Specifically, we are incrementally bullish on 2022 top-pick SOFI given both the direct benefits (i.e., lower cost of capital, increased NIM [net-interest margin]) and indirect benefits (i.e., rising interest rates) of becoming a national bank,” he wrote.

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SoFi shares have come under pressure in recent months, falling 31% over a three-month span as fellow newly public fintech players Robinhood Markets Inc. (down 65%) (NAS:HOOD) and Marqeta Inc. (down 45%) (NAS:MQ) have suffered rough stretches as well. But SoFi could be in a position to separate from that crowd in time, Oppenheimer analyst Dominick Gabriele wrote, by winning more traction with institutional investors.

“Some investors were skeptical of SOFI’s ability to obtain this charter and thus this likely is an upside surprise,” he wrote. Gabriele called the charter “a significant and tangible checkpoint in achieving SOFI’s ultimate goals of further consumer engagement and the competitive advantages SOFI ultimately looks to obtain.”

Morgan Stanley’s Betsy Graseck was also upbeat on the move, writing that the bank charter could boost SoFi’s profitability in a number of ways. The company will be able to offer more attractive deposit products while obtaining less expensive funding and it can grow its net-interest income by holding loans for longer, she wrote. With its enhanced capabilities, SoFi would also have the potential to win new customers and thereby increase the base to which it can cross-sell products.

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The charter still only remains part of her “bull case” scenario, however, and not her “base case,” since she still wants to “understand the speed and pace of the bank product rollout.” Graseck also has questions about how the charter approval will ultimately impact SoFi’s cryptocurrency ambitions given restrictions on banks’ ability to provide crypto transactions.

“If SoFi has to exit crypto, this is a partial offset to the accelerating revenue streams stemming from higher deposit growth, faster account growth, and increased net-interest income,” Graseck said in her note to clients. The company has at least two years to comply with the crypto restrictions on banks, and it’s possible that the rules could change over time, she noted.

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