It was always in the plan that SoFi Technologies (NASDAQ:SOFI) would become a bank. Banks can collect deposits and make loans directly. So it was a red letter day last year when SoFi won its national banking charter, after buying a small California bank called Golden Pacific. But that success has yet to benefit SOFI stock shareholders.
In fact, shares of the SOFI stock are down 58% since the bank charter was received. And since going public through a SPAC, sponsored by “SPAC King” Chamath Palihapitiya, shares are down 71%. Even if you got in at the SPAC’s original valuation of $10/share, you’re out nearly half your money. Now, note the disclosure. I still have money in SOFI stock.
SOFI Stock: Patience, Grasshopper
SoFi may be a bank, but it’s a small one. Assets were $19 billion at the end of 2022. Also, many people were wrong about what would happen to banks once money started costing money. I figured rising loan prices would cause yield spreads, the difference between what banks pay depositors and what they collect from debtors, would rise. They did. But the value of the government loans banks use to back their deposits, and their capital, fell. That was what took out SVB.
The model for what SoFi could become is Charles Schwab (NYSE:SCHW). But while Schwab remains safe, it has been hit by customers moving money into money market funds, away from low-interest deposits. Morgan Stanley (NYSE:MS) recently downgraded Schwab, and shares are off 38% since the crisis began.
The fast track story on SoFi, and fintechs like it, was based on cheap money that let investment returns fund growth. The Federal Reserve has crushed that story. The other reason to like SoFi is the same reason I like Schwab. It’s an online financial supermarket, with lower costs than traditional banks or brokers.
SoFi has one problem unique to it. It began life a decade ago with student loans, offering relief from what were then high interest rates. It still has a large student loan portfolio, and it wants to get paid. This is proving a political as well as a legal minefield.
When Will SoFi Come Back?
Confidence in SoFi starts with a chart of the 2-year Treasury Bill. Rates peaked a month ago at 5% and have fallen to 4%. Inflation seems to have peaked, from 8% at the start of the year to 6% now.
The result is to firm up bank balance sheets, to raise the value of bonds, and to encourage a move from safety to riskier assets. This will benefit SoFi.
SoFi also has technology assets other banks don’t. It owns Galileo, which means it’s wholesaling what it does to other banks. It owns the banking software firm Technisys, so it can help banks process the business they’re already doing. It just bought Wyndham Capital Mortgage , putting it in the home loan business.
SoFi puts all its customers’ money into the palm of their hands. It does wholesale and retail business, selling the software other banks need to compete in this new landscape. At Tipranks, eight of 11 analysts still have it on their buy lists.
What To Do Now
I have always said SoFi is a long-term play. SoFi is due to release results April 11, with a loss expected. Another loss is expected for the second quarter. But it should break even, or come close to it, in 2024. It’s not going to go “to the moon” but it’s going to rise before you think it will. Markets tend to look six months ahead.
On the date of publication, Dana Blankenhorn held long positions in SCHW and SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. His 10th novel is The Time Tunnel, now available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.