SoFi's launch of a bank could help drive 43% upside in the stock for 3 key reasons, Morgan Stanley says

• The approval of SoFi Technologies to launch a bank will help drive a massive upside for its stock, Morgan Stanley said.
• The bank said it sees a base case price target of $20 for SoFi, reflecting a 43% upside from Wednesday's price.
• SoFi late Tuesday received conditional approval from the OCC to create a full-service national bank.

SoFi Technologies this week received the green light from regulators to launch a nationally chartered bank, a move that would help drive a massive upside for its stock, Morgan Stanley said on Wednesday.

The investment bank said it sees a base case price target of $20 for the financial technology firm, reflecting a 43% upside from its Wednesday's price of around $13.96. For its bull case, Morgan Stanley strategists Betsy Graseck and Jeffrey Adelson are calling for a $28 price target, a 100% upside from the stock's current level.

SoFi Technologies late Tuesday received conditional approval from the Office of the Comptroller of the Currency to create a full-service national bank called SoFi Bank.

The good news, however, came with a caveat: SoFi cannot engage in any activity relating to cryptocurrencies unless specifically granted later by the agency. The office said SoFi still needs to move past conditional status and become a full-service national bank.

Still, Morgan Stanley said the green light from the OCC will give SoFi three paths to profitability:

1) SoFi will be able to offer more competitive deposit products and offer nationwide lending products in the next quarters, the bank said. Once underway, the bank said it can reasonably expect SoFi to deliver roughly $200 million in revenues thanks to a combination of holding loans longer before selling and lowering the cost of funds.

2) SoFi will be able to attract new customers and widen the funnel for future cross-buying, the bank said. SoFi is already ahead in competing for market share among Millennials and Gen Z customers, Morgan Stanley added.

3) SoFi will be able to expand net interest income as loans will be held longer, the bank said. SoFi, in the near term, will see a sharp recovery in its lending business through student loan volumes, which Morgan Stanley said is up a cumulative 92% in 2023 versus 2020, as public loan freeze expires and consumer excess savings recede.

Meanwhile, downside risks for SoFi involve competition slowing growth and pressuring revenues, student loan volumes failing to pick up, crypto activity pulling back, and the disapproval of the bank charter.

SoFi went public in June 2021 through a merger with Social Capital, a blank-check firm backed by Chamath Palihapitiya, a former Facebook executive dubbed the SPAC King.