SoFi has come SoFar

January 20, 2022 Good morning traders! Welcome back to The Daily Setup. Markets dropped yesterday and the Nasdaq entered correction territory. Here’s what’s on the docket today: - SoFi is becoming a bank - Bank of America and Morgan Stanley report earnings - Luckin Coffee may be eying another IPO Let’s get to work. Nick How’d the markets look? Market Outlook DOW 35,028.65 -0.96% S&P 500 4,532.76 -0.97% NASDAQ 14,304.26 -1.15% BITCOIN $41,973.38 -1.28% SoFi, Bank Earnings, and Housing BIGGEST MOVER SoFi Has Come SoFar SoFi (SOFI), the fintech [that used to brag](=) about not being a traditional bank, had some big news Tuesday evening. Its shares gained 16% in after-hours trading Tuesday evening and kept that pace into Wednesday after clearing the final regulatory hurdle to become a bank holding company. Last year, SoFi had announced its deal to [acquire Golden Pacific Bancorp]() and operate its subsidiary as SoFi Bank. With that deal expected to close in February, the timing couldn’t be better as their shares have been under a lot of pressure and, even after yesterday’s performance, are still down 13% YTD. With regulatory approval out of the way though, SoFi might just get the juice it needs to accomplish its long term goals. - As it stands, SoFi is technically not a bank. Therefore it had to be [shackled to an FDIC]( insured bank to hold customer deposits or issue loans. Upon acquiring Golden Pacific Bancorp, they can tell those leeches to take a hike, cutting out the middleman and expanding their services. - Gaining the approval for a bank charter license has [two advantages]( according to Mizuho analyst Dan Dolev: it should help lower the cost of capital, and gets SoFi a place within the federal bank regulatory framework. The executives at SoFi were probably pulling out their hair waiting to get this bank charter license, as shares declined 33% over the last three months. Now those pesky “partnerships” with FDIC-insured banks are out of the way and SoFi can start offering more competitive interest rates and expand their operation as they see fit. The future looks optimistic as [analysts believe]( SoFi has a strong growth outlook with a revenue compound annual growth rate of 28% through 2026. BoA and Morgan Stanley Rake it in In the bank battle royale that was 2021, the champions for Q4 turned out to be Bank of America (BAC) and Morgan Stanley (MS). As windfall trading on Wall Street ebbs and market volatility subsides, [not every bank comes out on top](. Goldman Sachs (GS), JPMorgan Chase (JPM), and Citigroup (C) all reported lower Q4 profits. A likely culprit for decreased profitability are the increasing salary demands of employees, as nearly every bank needed to put their money where their mouths were to retain their staff and executives. Unlike their competitors however, BoA and Morgan Stanley had a few key angles that set them up for success to emerge unscathed. - Morgan Stanley posted a profit of [$3.7B](, which was up 9% from the previous year. EPS came in at $2.01 a share, defying analyst expectations of $1.94 a share. This growth was driven by their wealth-management division (+10% revenue over the previous year), and investment banking (+6% revenue over the previous year). - Bank of America’s +28% Q4 profits were boosted by record investment-banking revenue and a rise in businesses and consumers willing to take out loans again. The bank earned $7.01B, [up from $5.47B]() a year earlier. Interest income rose 11% from a year earlier to $11.41B. What sets BoA apart is its high volume of US deposits, making it highly influenced by changes in US interest rates. That’s good news... [for now](. Bank of America and Morgan Stanley must be feeling pretty great as they rise above their competitors (you just know BoA is aiming for that #1 spot on the leaderboards) as their stocks gained +0.18% and +1.83% respectively. What seems to be a bright spot for many of these banks is [investment banking](=), as even those who experienced lower profits (looking at you Goldman Sachs and Citigroup) still saw growth in their respective divisions. With all that in mind, what’s surely to affect banks the most will be the Fed’s monetary policy, so keep an eye out for Jay and his Cronies. They could be around any corner, sitting in the shadows... lurking. Housing Starts Up, Homebuilders Down Investors with exposure to the homebuilders sector took it on the chin Wednesday, despite housing starts increasing to levels not seen in 15 years. The seasonally adjusted annual rate of [housing starts in December](=) came in at 1.7M vs. estimates of 1.65M. In addition, the seasonally adjusted annual issuance of building permits was roughly 1.87M vs. estimates of 1.71M. This should be good news for homebuilders, right? - The month over month and YoY rise in multi family homes were 13.7% and 56% respectively, while single family homes declined 2.3% and 10.9%. This makes sense because millennials are just [leaping at the opportunity]() to have children. - The large spread between multifamily and single family housing starts can be attributed to our dear friend inflation. Multifamily buildings use more steel, which is a less scarce material than lumber at the moment. It is also more efficient for electricians, plumbers, etc. to work on multiple units at a time versus one off jobs at single family homes. - Wall Street analysts have voiced their concerns about the homebuilder sector citing increasing mortgage rates, inflated housing prices, and a looming tightening of the Fed’s monetary policy. - Analysts at KeyBanc announced before Wednesday’s opening bell that they had downgraded single-family homebuilders KB Home ([KBH]()), Lennar ([LEN](=)), Toll Brothers ([TOL]()), and DR Horton ([DHI](=)) due to the previously mentioned concerns. Shares of the four major single-family homebuilders ended Wednesday’s trading session down 3.32%-4.62%. With housing numbers at levels not seen since 2006, will the upcoming years prove to be the same as those that followed 2006? I certainly hope not, but if I were to go long on the homebuilder sector at this time, I personally would avoid single-stock risk by looking at something like the homebuilding ETF, XHB. iTrust the Process Token Talk Following its first round of institutional fundraising, the digital currency RA platform iTrustCapital, has grown their wings. Wait, that’s a pegasus. They grew their shiny horn. Sometimes I get my mythical horses confused. Anywho, the company achieved unicorn status with a $1.3B valuation following a $125M Series A funding round. Matthew Miller, a principal at Left Lane High School Capital, [summed up the company by saying](, “iTrustCapital serves clients that seek long-term, tax-advantaged exposure to cryptocurrency as an asset class.” - The company was founded in 2019 and became profitable in 2020. The fundraising was slated to begin shortly after, but like many of your friends’ weddings, was pushed to late 2021. - The company’s goal for 2022 is to acquire 200k new clients with a focus on younger users. Currently, iTrust boasts a user base of 26k clients, with most falling in the 45-65 year old range. Thankfully, at 44, I have a ways to go before I get there. - Digital currencies had a breakout year in 2021, and according to [CoinMarketCap](=), had a total value of $1.92T as of January 10th. With the rise of digital assets as a *cough, cough* investment vehicle, it’s safe to say that iTrustCapital will have an abundance of competitors in the next few years. That said, innovative products such as theirs are of the sorts that the new generation of investors would be wise to look into. Digital assets, whether regulated or not, are sticking around and could be a valuable part of investors’ portfolios. Now let’s just hope we can iTrust that users’ accounts won’t be hacked...amirite?! Luckin for another chance Deals and Rumors In the “nothing surprises me anymore” category, disgraced coffee chain [Luckin Coffee said they plan to relist in the U.S]( later this year. You heard that right. The same Luckin Coffee that declared bankruptcy following a $300M accounting scandal in 2020 is looking to get back in the game. Shares of the Chinese coffee chain, which was once seen as the biggest competitor to Starbucks in mainland China, continues to trade on the U.S. OTC markets under the ticker LKNCY. The stock rallied [16.16%]( on the news. - Luckin was delisted from the NASDAQ in June of 2020 and later agreed to pay a $180M fine to settle accounting fraud charges brought by the SEC. - [Short-seller Muddy Waters](=) (parent company of Murky Pond) was the first to bring the fraud to light, stating the company “had an inherently flawed business model and inflated sales.” You can see Muddy Waters’ response to the news on their [Twitter feed](. - Despite the bankruptcy, Luckin has continued to expand its footprint in China and now boasts 5,671 stores in the country...500 more than Starbucks. - The company is currently exploring whether to relist on the NASDAQ and has been in talks with investors to discuss additional options for raising capital. In what may come as a surprise to absolutely no one, Luckin’s fraud is peanuts compared to fraudulent activities committed by big banks and tech giants over the last decade. Those companies are still thriving and I am fairly confident Luckin will do the same. Keep this story on your radar for a relisting date. As we covered with the uplisting of CISO earlier this week, LKNCY may continue rallying until there’s more clarity with the company’s plans moving forward. Oh, and if you were wondering who was buying shares of LKNCY yesterday, our guess was probably a gaggle of suburban moms equipped with mugs and t-shirts that say things like, “but first coffee.” Link Roundup Other News Other News Link Roundup - Sony hit on the Ricochet – Sony loses $20B market value in a day ([link]() - Lemme double upgrade ya – Rocket Gets a Double Upgrade ([link]() - Canuck Bucks – Canadian Password Manager,1Password Valued at $6.8B ([link]() - The Tide Pod Challenge just got more expensive – P&G Says Its Prices are Staying Up ([link](=)) - Pls Fix – Nasdaq Composite logs its 66th correction since 1971 ([link]() Who’s having a worse week, the Nasdaq or [Chamath]()? 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