"First, they have been freeing up their own capital at a rapid pace."
Aside from this statement not being literally true, the way you are modeling it (subtracting warehouse lines and deposits from total loan principal) is not very useful or reflective of real world rational financial decision making. In the real world, all else being equal, the lowest cost sources of capital are utilized first. Modeled this way 100% of SoFi's own capital is being utilized and the cash on their balance sheet is being borrowed from warehouse facilities at 5.26%-7.24% while it earns interest at 4.48%.
Given the expense, why are they accumulating cash in great excess of their operating needs? Are deposits simply coming in faster than they can deploy them? Are they expecting to rapidly deploy this cash as student loans return? Is it cushion to guard against banking instability? No way to get an exact figure, but it could be costing them between 10-15mil per quarter to maintain the optionality this extra 2.5B in cash is providing.
I agree with you. I'd prefer that they keep their cash and cash equivalents down around $1B or less and use it to lower their WACC. I do not know why they are doing this. I think they want to stay agile in case something comes along from an M&A standpoint, but again I don't think they need to have as much cash built up as they currently do.
I'd love for an analyst to ask this question to get some insight, but I don't think any of the analysts look this deep to be able to ask it.
Really enjoyed this read! Thank you Chris. I need to get the Cap Rate formulas into the head but Banking world is becoming a whole lot more clearer with you sharing your knowledge. Deeply Grateful!
Plz let me know the details of calculating "the remaining principal, other assets ..." and the "excess liquidity. I can't find numbers of SOFI Capital, remaining principal on 10-Q :)
"First, they have been freeing up their own capital at a rapid pace."
Aside from this statement not being literally true, the way you are modeling it (subtracting warehouse lines and deposits from total loan principal) is not very useful or reflective of real world rational financial decision making. In the real world, all else being equal, the lowest cost sources of capital are utilized first. Modeled this way 100% of SoFi's own capital is being utilized and the cash on their balance sheet is being borrowed from warehouse facilities at 5.26%-7.24% while it earns interest at 4.48%.
Given the expense, why are they accumulating cash in great excess of their operating needs? Are deposits simply coming in faster than they can deploy them? Are they expecting to rapidly deploy this cash as student loans return? Is it cushion to guard against banking instability? No way to get an exact figure, but it could be costing them between 10-15mil per quarter to maintain the optionality this extra 2.5B in cash is providing.
I agree with you. I'd prefer that they keep their cash and cash equivalents down around $1B or less and use it to lower their WACC. I do not know why they are doing this. I think they want to stay agile in case something comes along from an M&A standpoint, but again I don't think they need to have as much cash built up as they currently do.
I'd love for an analyst to ask this question to get some insight, but I don't think any of the analysts look this deep to be able to ask it.
Really enjoyed this read! Thank you Chris. I need to get the Cap Rate formulas into the head but Banking world is becoming a whole lot more clearer with you sharing your knowledge. Deeply Grateful!
Plz let me know the details of calculating "the remaining principal, other assets ..." and the "excess liquidity. I can't find numbers of SOFI Capital, remaining principal on 10-Q :)
Thanks for the article. What I do not understand is if they are getting 2.5 billion per quarter what is the constraint on lending 90% of that?
The constraint is that once they hit their minimum capital ratio, regulators won't allow them to hold more loans on their books.