Can a Twitter executive chart a new course for SoFi?

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Anthony Noto, the Twitter executive who has been tabbed to take the helm at Social Finance, is diving into the deep end in his first stint as a CEO.

Not only will he replace the entrepreneur who built San Francisco-based SoFi, he will do so in the wake of a sexual misconduct scandal that cast a dark shadow on the firm’s corporate culture.

He will also be responsible for managing a demanding set of deep-pocketed investors and determining when the time is right for an initial public offering.

And he faces other tricky decisions, including how to best position the company, which has expanded beyond its roots in the refinancing of student loans, for continued growth.

Noto served most recently as chief operating officer at the social media platform Twitter. He previously did stints at Goldman Sachs and as the National Football League’s chief financial officer. He is scheduled to take the reins at SoFi on March 1.

“SoFi has a significant opportunity to build on its leadership position in student and personal loans to revolutionize consumer finance and build a next-generation financial services company,” Noto said in a press release Tuesday.

Here is a look at five big challenges that Noto will face.

Reforming SoFi’s culture. Former CEO Mike Cagney’s tenure ended quickly in September amid a hail of allegations involving sexual misconduct. Cagney’s background was as a trader and he was accused of fostering an atmosphere that resembled a Wall Street-style boys’ club.

After Cagney’s departure, interim CEO Tom Hutton announced a new companywide initiative called One SoFi, the purpose of which was to define the culture and values that the firm wanted to embrace.

The initiative was announced in early November. Since then, SoFi has not made public any information about what progress has been made. One former SoFi employee noted Tuesday that office beer kegs have been removed.

“SoFi still has some cultural baggage to deal with due to the circumstances surrounding Cagney's departure,” James Wu, CEO of the data analytics firm MonJa, said in an email, “and that's tough to solve for any incoming CEO.”

Determining when to go public. Cagney long teased the possibility of an initial public offering — he floated the idea as early as 2014 — but never pulled the trigger.

SoFi has a number of key shareholders who might like to access wealth that is tied up in the company’s shares. That list includes the Japanese conglomerate SoftBank, which led a $1 billion equity financing round in 2015, and the venture capital firm Silver Lake Partners, which led last year’s $500 million round. That round reportedly valued the privately held company at more than $4 billion.

The list of anxious shareholders also likely includes SoFi employees who last year endured a brutal stretch of negative headlines about the company.

Noto will need to counsel patience while laying the groundwork for a successful IPO. That will entail convincing Wall Street that SoFi is still in the early stages of its growth.

Todd Baker, a former banker who is managing principal of Broadmoor Consulting, said that Noto looks like a good choice.

“I think you need a very sharp financial mind there and someone with a no-BS style. He fits the bill. They have some large, sharp-elbowed investors,” Baker said in an email.

Deciding how to grow. Under Cagney, SoFi’s growth plan was to become a key financial partner for an upscale segment of the young adult population dubbed HENRYs — high earners, not yet rich.

That strategy was laid in the company’s blunt 2016 Super Bowl ad, which suggested that only the most solvent consumers should bother applying for a SoFi loan.

SoFi, founded in 2011, initially offered to refinance student loans and later added mortgages, personal loans and wealth management options to its product suite.

But while student loan refinancing proved to be an excellent way to find new customers during a period of low interest rates, that opportunity is now shrinking, as rising interest rates reduce the spread between what borrowers pay the federal government and what SoFi can offer.

In consultation with the company’s board, Noto will have to decide whether to remain focused on a fairly small, though lucrative segment of the U.S. population.

“Obviously that’s limited,” said Adrian Nazari, CEO of the personal finance company Credit Sesame, in reference to to SoFi’s target audience. “If they want to build a very large business, they need to become a lot more mass appealing.”

Yes or no on a bank charter? Before Cagney stepped down, SoFi filed an application to open a Utah-based industrial loan company.

The application was withdrawn in the wake of the CEO’s departure. A source familiar with SoFi said on Tuesday that the application was pulled because of the turmoil involving the company’s management. “When you have a huge shake-up like that, you can’t go forward,” the source said.

A bank charter would allow SoFi to offer deposit accounts to its customers, an important step in making SoFi their primary financial institution.

But it is not clear that SoFi needs a banking license to build that broad customer relationship. In the coming months, the company is expected to start offering SoFi Money, an account offered in conjunction with WSFS Financial in Delaware.

If SoFi does renew its bank application, the company will likely face opposition from both small-bank lobbyists and community reinvestment advocates.

Some observers believe that SoFi and other fintech firms will have a better luck once President Trump’s nominee to chair the Federal Deposit Insurance Corp., Jelena McWilliams, succeeds outgoing Chair Martin Gruenberg.

Proving that he has the right background. Noto does not appear to have any experience in consumer financial services, which could be viewed as a weakness.

But he does have a strong background in technology, which should be helpful at SoFi. He also has lots of experience in the capital markets.

During his first stint at Goldman Sachs, Noto served as the firm’s head of communications, media and internet equity research. Later, he spent nearly four years as co-head of the Goldman investment banking unit that specializes in tech, media and telecommunications.

Noto joined Twitter in 2014, first serving as chief financial officer and then as COO.

"As a former Goldman banker and Twitter exec, Mr. Noto checks both the Fin and the Tech boxes and is a seasoned operator,” Ram Ahluwalia, CEO of the data analytics firm PeerIQ, said in an email.

“Also, Mr. Noto can sell the promise of SoFi during a potential IPO."

This article originally appeared in American Banker.
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