SoFi Technologies (NASDAQ:SOFI) shares are down more than 6% premarket Monday after Wedbush analysts downgraded the stock to Underperform from Neutral, cutting the price target in half to $2.50 per share.
The analysts told investors in a note that fair value accounting may present headwinds for the company.
The personal finance firm's share price is trading around the $4.70 per share market at the time of writing.
The analysts explained that the firm believes SoFi may be nearing a tipping point on the fee income it recognizes related to loan origination and sales, while "capital levels may be overstated using fair value accounting," and they think the company may look to raise capital this year to support growth.
"In a hypothetical analysis in which we applied the held-for-investment / CECL accounting methodology used by LendingClub to SOFI's financials would result in SOFI's tangible book value being reduced materially by nearly 60% on an apples-to-apples basis to $1.27/share from the current $3.05/share," they added.
They explained that they do not expect SOFI to change its accounting methodology or reduce its fair value mark assumptions in the near term.
However, "we believe regulators may look at SOFI's accounting and may suggest to SOFI to operate under a more conservative capital requirement framework that contemplates a hypothetical switch to CECL accounting given SOFI is comfortable holding loans to maturity rather than selling them," the analysts wrote.
"We expect regulatory scrutiny on capital ratios and stress testing to intensify following the failures of SIVB & FRC."