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SoFi share rises after company obtains approval for bank charter – ‘a big step forward’

Shares in SoFi Technologies Inc. rose in trading after opening hours on Tuesday after the financial technology company said it won regulatory approval to become a bank holding company.

The company announced late Tuesday that it had won approval from the Office of the Comptroller of the Currency and the Federal Reserve for its plans to become a national bank by acquiring Golden Pacific Bancorp Inc., a small community bank, and operating a bank subsidiary.

SOFi SOFI, -8.64% expects the Golden Pacific Bancorp agreement to close in February.

Shares in SoFi rose nearly 17% in after-hours trading on Tuesday.

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SoFi sees several ways in which the bank charter will improve its business. The company expects it will be able to offer more competitive prices on its lending products and provide members with high interest rates across check and savings accounts, CEO Anthony Noto said in a statement.

Mizuho analyst Dan Dolev predicted that SoFi's banking progress would be well received on Wall Street, in part because of its potential earnings benefits.

"While having a bank charter license helps improve credibility and trust, it should first and foremost help lower SoFi's cost of capital," he wrote. Dolev estimates that SoFi could recognize $ 200 million to $ 300 million in step-by-step adjusted earnings before interest, tax, depreciation and amortization (Ebitda), mainly by lowering its financing costs.

The company's regulatory approval marks "a major step forward," according to Dolev, as it will move SoFi "into the federal banking regulatory framework, where it will be subject to extensive supervision and banking regulation - an advantage over competitors."

The company first announced its plans to acquire Golden Pacific Bancorp in March last year. At the time, the company had sought to obtain its bank charter through a "de novo" application process, but determined that it would likely achieve its goal more quickly by acquiring an existing bank and pursuing a "change of control" application.

Shares in SoFi have fallen by around 38% over the past three months, as the S&P 500 SPX, -1.84% has increased by 2.4 per cent.

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