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On this bonus episode of On The Tape Guy Adami and Dan Nathan interview Anthony Noto, CEO of SoFi, and discuss his time at West Point (2:30), his transition from West Point to Wall Street (7:00), lessons learned from the Financial Crisis (10:30), SoFi’s culture (18:00), his journey to CEO (25:00), the importance of mentorship (32:30), his views on the macro environment (37:00), and his memories of the Army-Navy game (41:00).
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Show Transcript:
Guy Adami: [00:00:28] CME Ad. On the 11th hour of the 11th day of the 11th month of the year 1918 as major hostilities ended in World War One, Veterans Day started. And this is a special, obviously, week for us, and we’re really honored to have Anthony Noto join us for this special drop of the on the tape podcast Dan. [00:00:52][23.8]
Dan Nathan: [00:00:52] Yeah, no Anthony, the CEO of SoFi, you and I have watched his career. We’ve just marveled at it. Right. He was this very, very prominent Internet analyst in the late nineties, in the early aughts. And then he went to the NFL to become a CFO and then went back to Goldman as a top Internet analyst. He was at Twitter as the COO there, brought them public, and now he is the CEO of SoFi. But what’s interesting about this episode, this bonus week here, is that it’s Veteran’s Day, like you said, and he started out in college at West Point and he has a career of service. We want to thank our good friend, Liz Young, who is the head strategist over there at SoFi joins us on many different pieces of content that we do for RiskReversal media guy. [00:01:38][45.5]
Guy Adami: [00:01:38] Absolutely. And it’s great that E Y from SoFi was able to set this up. It was a great conversation from West Point to Wall Street. I think you guys and gals will enjoy listening to Anthony’s comments about the market, about his time at West Point, about what it means to be a mentor and to have mentors far ranging conversation. Sit back, relax and enjoy. [00:02:00][22.0]
Dan Nathan: [00:02:02] Anthony Noto is the CEO of Sofi, where he’s helped the company grow from 430,000 to more than 4.7 million members. Noto is the former COO and CFO of Twitter. Previously, he was a managing director of Goldman Sachs and the CFO of the National Football League. Anthony, welcome to On the Tape. [00:02:20][18.3]
Guy Adami: [00:02:21] Anthony Indulge me for just a brief minute. I grew up in Croton on Hudson in the shadow of West Point. I grew up going to football games at West Point, and on December 10th of this year at 3 p.m., West Point will play Navy. And I will tell you, I cried a lot of things, but I guarantee you I will cried during that game at the different things that they put on. And after that game, when each team sings to their fans, speak to me what it was like going to West Point and playing football for the cadets. [00:02:56][34.9]
Anthony Noto: [00:02:57] You know, every day I was there, I felt like it was a privilege. It was an honor to have the opportunity to attend West Point. I was really attracted to it at a at a relatively young age because I thought it would allow me to be, you know, be someone that gets more than an education, that walks out with more than a diploma, and that it was almost a degree in leadership to prepare me better for life. And it’s an incredibly special place that the highs and lows are pretty significant. The challenges are great. You can’t make it through on your own. You have to build a great support system. You have to provide great support system. It teaches not just about leadership, but also followership and teamwork and overcoming adversity. And I can remember walking across the plane as a plea, you know, in November, it’s freezing cold out. I’m in swim class as a plea, but everyone had to take that. Your hair soaking wet. You’re putting your uniform on as fast as you can. You even have time to dry off and you’re cutting across the plane to go to to a chemistry class, which you’re going to have an exam in. And by the time you get there, your hair’s frozen. You’re now freezing because you’re what when you left the gym and next thing you know, you’re finishing the chemistry exam and you’re going to the mess hall for lunch and you’re getting hazed. And it just many, many challenging times. But it also makes me incredibly proud of having been a graduate and and benefiting from the great experience I had there. [00:04:17][79.7]
Guy Adami: [00:04:20] Typically, especially, you know, I’ll just stay with football for a second, but typically football players at any of the academies have an opportunity to play not only obviously at said academies, but a lot of the Ivy League schools, places like Williams, Amherst. And I’m sure you had the similar opportunities. Why West Point? What was it that drove you to go there? Because as you know, and I think as most of our listeners understand, it is a huge commitment. It’s an honor to be there. [00:04:46][25.9]
Anthony Noto: [00:04:47] The thing that, you know, my choices came down to West Point, some Ivy League schools, some Nescac schools that are really strong academically. And my view was, you know, if I went to those schools and I graduated 2.0, that diploma, having been a graduate, that school wouldn’t stand for much. And it’s not that I was trying to get a 2.0, but if I went to West Point, I would graduate with a leadership degree and people would be less focused on my GPA and more focused on who I was as a person and what I learned. And fortunately, I ended up having good grades. So it was a combination of both, but it just more than going away to college. It was, you know, obviously serving your country. But in order to serve your country, the educational background, the experience there prepares you to be a leader of character. And that’s what made the difference for me on the institutional side, the academic side and the military side and the athletic side, it was one of the few places that would allow me to play football and baseball. It turned out after I got there, I just played football because of how challenging it was to get playing time etc. But I learned just as much in the athletic field as and as it did anything else at West Point, because the coaches there are also building leaders of character. And so it’s not just in the academic classrooms, in the military arenas, it’s also on the athletic field as well. So it was the combination of that comprehensive experience over the the four years that I thought would prepare me better for life. And, you know, I you know, I would do this. I would do it all over again, without a doubt. [00:06:07][80.1]
Dan Nathan: [00:06:08] You know, guy who was obviously this tremendous two sport athlete at the West Point here, but he’s also now a lax dad. Something, Anthony, you and I have talked a little bit about. You’ve had tremendous success with your five kids, but I think lacrosse is their sport. Is that true. [00:06:22][14.3]
Anthony Noto: [00:06:23] For we have five total children, four daughters and a son. And the three older daughters have all played in college. And lacrosse was the sport that they played or are playing. And then my son plays both football and lacrosse and and he’ll he’ll play in college as well. So we are we live in Darien Connecticut. We really benefited from the kids being introduced to lacrosse at a really, really young age. [00:06:46][22.9]
Dan Nathan: [00:06:47] Yeah. So so Anthony, you know, Guy and I obviously, you know, we’ve watched your career because you’ve done just a lot of high profile jobs over the last 20 years. You know, a top banker, Goldman Sachs Internet space. Obviously, you’re the COO. At Twitter. You were the CFO at the NFL. You know, now this stint at Sofi. And, you know, we spent a lot of time, Guy and I, we work closely with Liz Young, your head strategist. She does a lot of content with us both on CNBC on on RiskReversal media. And you know, we want to talk about the mission at Sofi. But, you know, I just asked you a couple of questions about West Point. How did you go from West Point to Wall Street and talk to us a little bit about that transition and what was, you know, was the training in the service? Was it important for a career on Wall Street and then obviously going on to lead companies, what you have over the last 20 plus years? [00:07:41][53.8]
Anthony Noto: [00:07:42] Yeah, I’d say the training at West Point and also in the Army has served me incredibly well for the last 30 plus years since I graduated. It teach you it teaches you strategy. It teaches you how to be persistent, how to motivate a team, how to do more with less and and really overcome the odds. You know, I wouldn’t trade my time in the at West Point or in the Army for any other professional experience. I got to go to some places far off and learn how to adapt in an environment that we didn’t have the skills that you would have typically back in the United States or in a in a full blown conflict. So it was a great experience and it definitely prepared me for my professional life. You know, I benefited from a lot of luck. And yes, I’m a hard worker and I think I’m intelligent and I can be creative and I’m a team player. But luck has to play a big role in it. I played football and in the spring of my sophomore year I tore both of the ACLs in both my knees at the same time. That ended up having consequences. Later, when I was graduating on a commission physical, I played for the next two years without any cells in either knee, which wasn’t the smartest thing looking back. I mean, I had them reconstructed in second semester of my senior year after playing an 11 game season, and during that physical for being a commissioned officer, I was disqualified from entering the army because I was on crutches from having my ACL done in January and my other ACL done in March. And so I ended up having to apply for a waiver to be in the military, which I did, and I had to pick a non-combat arms because of physical limitations they thought I could have, which turned out not to be the case. And I chose this the the branch called Signal Corps, which is communications. And I learned about Internet protocol and IP switching and asynchronous transfer mode in 1992. And that technology background when I got out served me well, combined with being a brand manager of Kraft Foods to really be able to cover the Internet sector in 1999 at Goldman Sachs. And so it was a combination of the technology background, brand and management part and a short stint at Lehman Brothers covering retail companies. That led me to to Goldman in 99 to cover the Internet. It was the combination of those three industry groups was really needed to understand that sector. You know, Goldman’s a phenomenal platform. You get an opportunity to meet a lot of different people, a lot of different management teams. And the more time I spent there, the more opportunities that were presented to me, which is how I ended up at the NFL. And and, you know, from there, going back to Goldman and running banking, which is how I ended up at Twitter and from Twitter, I was recruited to SoFi. [00:10:19][156.9]
Dan Nathan: [00:10:19] All right. So talk to us a little bit about the late nineties and being an Internet analyst. At the time, I was at a hedge fund. I read Noto’s notables. That was a it was a must read guy. You probably remember it at the time. And, you know, it’s funny to think back now because, you know, we’ve all seen all these different market cycles since then. I came into the markets during that it all seemed pretty normal to me. But in hindsight, you know what I mean? Like we could, you know, everyone knew that this this great time was going to come to an end. Did you ever think that it was going to end as badly as it did watching the run up to it and what were like some of the lessons, I guess, you know, as you got to know these companies, there were new technologies. Investors were just you know, I mean, we’ve seen this, you know, in the last ten years with crypto, you know, when there’s something new and people don’t understand it, there’s a lot of FOMO around it. And so I’m just curious, you know, is a lot of what we’ve seen over the last call it ten years in speculative, risky assets, does it go back to those period in the late nineties where, you know, you had a front row seat for it? [00:11:23][63.9]
Anthony Noto: [00:11:24] Yeah, I like everyone else in 99, 2000, 2001, learned a lot of, you know, tough lessons. You know, one of the things that allowed us to sort of navigate all the depositions and all of the, you know, investigations, etc., is that we always said what we believed and did real fundamental work. The reality was we just made bad assumptions and the wrong assumptions. And so the biggest thing I learned was really trying to challenge yourself, regardless of the market environment, on the assumptions that you’re making. And in long term model capability and long term ability to drive free cash flow, sustainable, competitive ventures, all the things that you learn in business school, you have to challenge yourself to really, really see all sides of the equation in order to make sure you’re you’re making the best conclusions when you’re recommending a stock or determining the valuation. So as we approach 2007, I at that point was covering not just the Internet, but also media and communications. I was covering satellite and cable companies, traditional media companies and Internet. And in September of 2007, I wrote a report that said, Get in the foxhole. And I downgraded the entire CME Group, all of the Internet stocks, all of the media stocks and satellite and cable. And as a sector, I downgraded the sector and basically said I’m seeing the same things I didn’t react to negatively enough in 2000. And in the economic environment that will negatively impact these companies are dependent on advertising, which is tied to the economy and dependent on consumer spending, which is tied to the economy. And I downgraded the whole group, but it was 100% pattern recognition. It was listening to our financial services analysts explaining to all of us and the other industry groups that the subprime issues weren’t going to impact the prime customers, they weren’t going to impact the. And I heard like the tent, she literally listed out the ten reasons why subprime wouldn’t help. I’m like, that is the same stuff that every technology analyst, every Internet analyst wrote back in 2000. And I just took every one of those and I decomposed it with my team. I said, We’re downgrading the group. I looked like a complete idiot from September to December of 07 because the stock just kept going straight up. And then we saw what happened in 2008, and I was at the NFL in January of 2008, and they they also had to reorient their financial foundation and their liabilities and assets, etc.. But I definitely learned a ton from that first experience applied to the second one and was able to get out unscathed. In this environment you know, I’d say there’s a lot of other, you know, similar patterns right now, though. Everything’s being thrown out, you know, the babies being thrown out with the bathwater. There are companies that have sustainable models in this environment that will come out the other side. And right now, I think everything is just tied to the economy. And the economy has a huge question mark to it. Is there going to be a recession, will be a hard landing, will be a soft landing on unemployment, get to a low fours, will get to five or interest rates, stay in the high single digits, will get down to mid-single digits. There’s just a lot of uncertainty and the markets, you know, discounting that appropriately, should people have known about it before? I don’t know that the patterns were recognizable as they were in the financial crisis, but there were definitely businesses that weren’t sustainable and not durable and people didn’t do the work that is definitely been replicated. [00:14:40][195.8]
Guy Adami: [00:14:41] So I would submit everybody is a genius when everything is going higher and money’s free. Everybody’s a genius and they’ll be the first people to tell you how smart they are. But I would submit that the environment that we’re in and probably will be in for a period of time lends itself and will reward people like you, managements like yours, and people that have been through stuff like this before, not only in the professional world, but and in their personal lives as well. Can you speak to that? Because it’s painful going through it, but I think you’re going to be a better company. SoFi is going to be a better company on the other side of this. [00:15:20][38.8]
Anthony Noto: [00:15:20] Well, the one thing I definitely learned from both experiences, both in the early 2000s and in the financial crisis, is that you have to build a durable business model. And one of the first things that we did in 2018 when I was arrived and it was really painful because it was still, you know, you know, hey, was still being put in the barn. It was a heyday still. I went to the board and said, we’re going to our number one priority for the year is focusing on quality over quantity. And the company was private and they had they had driven a significant amount of growth and the CEO and CFO were basically pushed out and they had a plan that had the funding volume growing meaningfully, I think about 50% in 2018 versus 17. And I had to tell the board, we’re not going to grow 50%. In fact, we’re in a contract because a lot of these loans through the cycle will not drive a good economic return. And just like with IPOs or just like with anything you’re selling to somebody, it has to be able to drive an acceptable return through the cycle. It needs to be durable through the cycle. So we need to re orient our loaning, our loan product, the credit models, our marketing, our pricing, our risks so that these loans can have a 40 to 50% variable profit margin today. And in a cycle when the life of loan losses go up, it’ll still be an acceptable return. And so from the very beginning, we established our mission, we established our strategy, but we went back to we need durable products. They need to survive through the cycle. And it was painful. We went from, you know, our our loan volume contracted about 30% to get to that high quality and we rebuilt from there. And that’s been our approach with every business and the totality of our business, why we have a bank license. It’s why we have warehouse lines with 20 different banks. And the reality is, is that when, you know, fintech stocks in the market was doing incredibly well in 2020, prior to 2021, I was surprised with how little people really understood about our company versus others. And it’s disappointing when you work really hard to kind of build these foundational things and people don’t even care. And so our stock went up with everyone else’s stock and obviously it’s come down with everyone else’s. I’d say the big difference now is investors truly understand the different difference between us and others. Our funding costs, our distribution of our loans, the diversity of our businesses that allows us to go in different areas, in different economies, and that we built a durable company. That doesn’t mean we’re always going to hit our numbers and or is going to be raised to be able to raise the numbers. And we’ve had six record quarters in a row of revenue. And, you know, knock on wood that continues. But our company is going to be durable because of the way we’ve built it and the way we manage risk and allocate resources. And it’ll just take a while for that to get priced into the stock. And it’s not today. [00:17:58][157.7]
Guy Adami: [00:17:59] West Point. Wharton Goldman Sachs culture when I was at Goldman was there from 96 to 03 and Culture Carrier. If I heard it once, I heard it a thousand times. And listen, there was a culture at Goldman Sachs. I’m sure it still exists. There’s a culture at SoFi as well. What is that culture? What do you want it to be and how important is it? [00:18:21][22.0]
Anthony Noto: [00:18:22] I think it’s critical. I’ve had the benefit of working at places with great cultures, and I’ve learned a lot of great lessons about building a company. I’ve said since the day I got here, it’s in our new employee introduction letter that we send to them. We want to have the best culture in the world and people sort of like Squawk when I say that, like, Oh, that’s hyperbole. But if you think about what it takes to have the best culture in the world, it doesn’t take capital. It doesn’t take some intellectual property, it doesn’t take some technology that’s unique that no one else has. It literally takes leadership alignment and accountability. And the first week I got to SoFi, people often ask me what was the most surprising positive thing when you got to SoFi it was that the people of SoFi I wanted to have a great culture, I did town hall meetings in Utah and Montana, California and Delaware and every town hall meeting. The first or second question I got was, how do we build a great culture? And from the very beginning, I said, Well, first of all, we’re going to build the best culture in the world. It takes those three things leadership, alignment and accountability and working at alignment, accountability. And we’re going to keep driving it better every day. And so building a diverse culture, building a culture, everyone feels welcomed, everyone feels accepted, is paramount to us building a service that is appealing to everyone in the world and in the United States. So the culture goes hand-in-hand with us serving our members and and being a very differentiated company. And it’s not easy. Like we’re nowhere near the best culture in the world, but we’ve made great progress in the last five years. We have the right core values, we have the right alignment, and we have the right accountability. It’s about becoming better and better every day. One of our priorities for 2023 is driving towards the best culture in the world. And a subheadline below that priority is we want to be better every every second of every minute of every hour of every day of every week of every month and every year. Because every meeting we have, every interaction we have either makes our culture better or worse. And we want to make sure we’re always focused on making it better in every micro element of of measurement. [00:20:22][120.2]
Dan Nathan: [00:20:23] So you mentioned, you know, durability as you think about just kind of the business that you built. Obviously, culture, right. There seems to be a bedrock component to the SoFi mission here in this latest quarter you guys released a couple of weeks ago, you added over 400,000 members to nearly, I think, 5 million. Talk to us a little bit about that user growth in this environment right now. And Guy just mentioned before, like everyone’s a genius. Anyone could start a lending business or, you know, start a business that wants to use tech technology to democratize finance or this or that or whatever. But you guys, in a very difficult environment, are growing your user base at a clip that I think you have not seen in a while. And you’re also guiding to some of these economic metrics that, again, I think that a lot of investors in financially oriented companies would not expect to see in a rising rate environment like this or just a kind of an economic environment where there’s so little visibility and where the consumer might be getting tapped. [00:21:23][59.6]
Anthony Noto: [00:21:24] Yeah, we’re absolutely taking share from traditional financial institutions. There’s about, you know, 500 million accounts in the United States. There’s 5000 banks. There’s a huge opportunity to develop a one stop shop to build a lifetime relationship with members. Our mission is to help people reach the point that they have enough money to do what they want to live the American dream. People have done well academically, have done well professionally, and they just can’t have the house they want live where they want, the size family they want or the career that they want or retire when they want. And we’re trying to bridge that gap because they’re underserved. In order to bridge that gap, we have to be there for every one of the major financial decisions they make, whether that’s paying for college or a house or a wedding or saving for their children’s education or retirement. But we also want to be there for all the days in between. And in order to do that, we have to build what we refer to as a one stop shop. To build a one stop shop takes a lot of capital. It takes a lot of great product and engineering teams, and it takes great leadership of allocating resources. And in 2018, we had just two products and we’re just on desktop, and now we have that one stop shop on mobile. And along the way we really did get criticized internally and externally because we weren’t growing any of our products as fast as a monoline fintech company was. And I used to say to the company, listen, it’s going to look like we’re behind for a very long time because they’re putting all their resources into one product, like trading or checking and savings or credit card. And we’re putting our resources into brokerage and crypto and single stocks and ETFs and fractional shares in addition to checking savings, in addition to four types of loan products, in addition to a mobile app and all of these member services. And so we have things company and things are growing out of the ground. But it’s ten things, not one. They’re one thing we’ll grow faster than our ten, but at some point our ten will reach the same scale and we’ll dominate will be on the other side of the mountain and they’re still on the front side of the mountain. And that’s kind of where we are. And that’s what’s allowed us to grow and gain market share in a tough environment where student loans are largest and first, business is operating at 25% of what it was prior to the pandemic and prior to the president’s moratorium on student loan payments. The fact that we’ve had six record quarters of revenue in a row is because we had a long term strategy. We stuck to it. We didn’t go after what was most popular, what was in favor. We stuck to that strategy, and it’s resulted in us having a diverse business. And like I said, you know, the world could get a lot worse. Things could be more challenging for us, but I think we have the best chance of outperforming and our value proposition one of our products is meant to be superior petitions, which is why we’re giving 2.5% on checking which no one’s giving and 3% on savings. It’s why we don’t charge fees on any of our loan products as it relates to personal loans and student loan refinancing. So we try to make them best of breed. We try to own the technology, innovate faster. It’s allowing us to gain massive share. [00:24:22][178.0]
Dan Nathan: [00:24:23] So so you were a CFO, obviously, at the NFL and at Twitter, then the COO of Twitter. And you were, you know, going to be getting a CEO gig, you know, sooner or later. Right. And so when the SoFi opportunity came up and again, it was a bit of a mess before you took over. Correct. And I’m just curious, when you think about just all of the progress you’ve made in a short period of time, in a very difficult environment, the pandemic, the post pandemic and all the stuff that we’ve kind of seen as far as the economy and inflationary environment, what was like what was the the opportunity with SoFi? Was it that you wanted to go to fintech or did you believe in the mission or a combination of the both? Like it really seems like you were kind of meant for this sort of job. You just listed how many banks there are in the U.S. and just how many resources are being committed to defend these incumbent models. But what you’re trying to do is something fairly unique here. And I’m just curious, was that part of the decision to become the CEO of SoFi? [00:25:24][61.2]
Anthony Noto: [00:25:25] When I when I first got the call about SoFi, I said, I’m not interested in leaving Twitter. We had gone through two restructurings. It was September or October of 2017. I could start to see the beginning stages of us returning to member growth and also revenue growth and the strategy with Jack as the CEO was working and we’re going to be profitable in the fourth quarter. And I started coming to office for the first time in four years, smiling every day because that day was better than the day before from a business standpoint where that was not the case in the prior four years and it was a tough go to get to that point. So I had no interest in leaving Jack and I had a great relationship, still have a great relationship where I knew he was always going to be the CEO and that if I wanted to have that role, I would have to leave the company. And I promised him, you know, if and when that occurred, I would be really transparent with him and and vice versa. So I said, I’m not interested. And the recruiter called back a couple of times like, this is the perfect role for you. It combines finance, it combines social, mobile, your Internet background, your Goldman background. And I said, I’m just not interested in leaving Twitter right now. I just don’t even want to go through the pain of evaluating it. And he called me back a third time and he said, You’re damaging yourself. I’m like, What do you mean? He’s like, There are people in the board that know you personally. They’re actually offended that you won’t even look at the company and give them feedback. At the very least, look at the company. Tell them whether you think it’s a good or bad job, but it’s not the right time. So I said, send me the information. And two things stuck out for me. I actually went through the information. They had $2 billion of cash. And I thought to myself, how many private companies that I know from 1998 to today have ever raised $2 Billion dollars of cash as a private company and it’s like three in the direct to consumer space. Priceline was one and Amazon was the other. And I can’t remember the third, but. But SoFi I was the fourth. Which then caused me to say to myself, Why is no one done to the financial services industry? What Amazon has done to retail and expedient Priceline have done to travel. And, you know, YouTube and Netflix have done the traditional media. And I came down to to two conclusions. One, No one had enough capital. It’s incredibly capital intensive industry. And two, no one had the guts to take on the regulatory responsibility. They just wanted to be a technology company and make any decision they wanted, whether it was reckless or not. They did want to have to like color inside the line, so to speak. And I thought to myself, I’m like, the reality is any durable company that you build, it has to color inside the lines or it won’t be durable by definition. So I saw that as a unique opportunity to build something, one, because the capital and two, I had no issue coloring inside the lines, whether they’re regulatory or durability constraints. And that’s what got me excited about it. And then I presented to the board the exact strategy and mission we have today. I’m like, I know what the old guy’s point of view was. I know what the companies are doing. That’s not where I’m going. This is where I think we should go. Here’s where I think the mission should be. Here’s where I think the strategy should be. And you have to buy in to spending a lot of money for three years on building out all these products. We can’t build out just the loans until they’re very big and then build out checking and then build out. It can’t be sequential. It has to be parallel. And if if you’re not on board for that, I’m not your guy. And ultimately they bought into that, which was a huge element to why I was willing to do it and why we’ve gotten here, because they did provide that support and they never backed away even when there were more challenging times, as there likely is with all companies you’re trying to build. And then the last thing, which I really didn’t appreciate until I started presenting to the board and I got a little bit choked up and I’ll do it now as well. My mom and dad got divorced when I was three, an older brother that was five and a younger brother that was, you know, just a few months old. And we were on food stamps and welfare. And, you know, it was a tough time. Like, I, I look back on it and say, thank God people took care of us. I was a free lunch kid. It wasn’t was it middle school that I actually got embarrassed when I went to go through the cash register my luncheon, the woman told me it was $3. I’m like, for what? And she said, You have to pay for your lunch. And I’m like, I’ve never paid for my lunch. I didn’t even know. And so, you know, it was also an opportunity to kind of give back and help people in a way that my family didn’t have the help and my brothers didn’t have the help and and kind of changed the world for other people. [00:29:33][248.0]
Guy Adami: [00:29:35] You know, you mentioned the recruiter called you three times and then you subsequently made that decision. But I can say probably without equivocation that you bounced it off a couple people, your wife being one of them, clearly. But this is going to be a question about mentorship. You played, I think, for Jim Young. I think you played for Bob Sutton maybe for a year or so. Coaches are always a you have a huge impact on people’s lives. Talk to me about your mentors and the importance of mentorship at SoFi. [00:30:04][29.2]
Anthony Noto: [00:30:05] Yeah. So it’s, as you said, those names I had chosen. Jim Young was the head coach at Army for all four of my years. And there’s so many things he taught us as a team that I use things like critical success factors and who dares wins. You know, I was taught all that by by coaching. Our team was taught that not just me, a coach, that was our defensive coordinator. I was a fullback for my first two years and they moved me a linebacker in the spring of my sophomore year, which is when I blew out my knees. And Coach Sutton taught me that I never played defense. Coach Sutton taught me the defense, you know, in the halftime room during one of the practices, and it was towards the end of practice and we were doing goal line. He’s like, Hey, hop in there at inside linebacker. And I was scared to death like I had never played defense. This is Division one on the goal line and I made a huge tackle and like the second play and he literally said, You’re never playing fullback again. And it changed my life. And I ended up starting as a senior and had a great senior year. Coach Sutton and I’ve stayed in touch over the years. Personally, I you know, when the Jaguars were out to play the Chargers a couple of weeks ago at Sofi Stadium, I wasn’t planning on the game, but I just wanted to go down and say hello and and spend some time with him, which was phenomenal. My linebacker coach Jay Robertson had a huge influence on all of us. The linebacking corps at West Point, I think, is a unique group of leaders on the field, but also in life because of Jay and everything he taught us about being a man and being a leader. And then Coach Seymour, who was the running backs coach, was the guy that recruited me in high school who made it all possible, who believed in a kid from Poughkeepsie where there wasn’t a lot of kids from our high school ever played college sports and gave me a shot is something I’ve also stayed in touch with. In high school I had great, great, great mentors, Coach Peterson and Coach Picone and football and baseball Coach Davis, and they taught me a lot about being a role player and a lot about being a leader and a lot about being a great teammate. So they’ve all had a huge, huge impact on my life. And, you know, as you mentioned. Coaches of all throughout your life. My mom was my Little League baseball coach and that was quite an experience. [00:32:05][120.4]
Dan Nathan: [00:32:06] iConnections Ad. [00:32:07][0.3]
Guy Adami: [00:32:56] The importance, as you know, can’t be underestimated. And you know, Goldman Sachs part of that culture was having mentors and stuff. And I think, unfortunately, I can’t speak intelligently about corporate America now. I have not been part of it for a long time. But I think given what’s happened over the last couple of years with COVID, it’s hard to be a mentor and to find a mentor. So how are you bridging that gap at SoFi because I think it’s critically important for people to have mentors, and quite frankly, it’s equally important to be a mentor. [00:33:22][26.7]
Anthony Noto: [00:33:24] Yeah. So at SoFi we have things called circles. There are affinity groups that allow people that have a similar interest or similar background to come together across thematic areas. And that’s a good support system. There’s also informal mentors, and then we also have a group called SoFi Leadership Group, which is, you know, it’s about 125 people of the most important leaders of the company. And there are assigned groups called the SLG Groups, advisory groups, where they meet periodically on a monthly basis to make sure that we’re providing these venues in these frameworks for mentorship. And I did benefit from great mentors at Goldman, some of which was formal, some of which was informal. Rick Schutte was a great mentor early on who told me I didn’t have to do valuation. And I’m like, to this day, I’m thankful. He challenged us on using, you know, not just price to sales multiples to have a DCF to have assumptions. So he at least go back. And during that crisis, it proved out to be really prudent. And Rick Sheldon was a huge mentor and also your friends, Jack Sebastian is one of my closest friends. And, you know, we’ve, I think, been there for each other along the way, even though we were appearances. You know, Greg Lamb is another guy. You know, we’re peers. And along the way, we really helped each other quite a bit. So it’s not just people that are older than you or more senior in you that provide that mentorship. It’s also, you know, your peers. [00:34:41][77.5]
Dan Nathan: [00:34:42] By the way, Rick Schutte, he was also a mentor of mine. He and I ran a portfolio together for a bit in the early aughts and he was a it was still is. He’s a brilliant market mind and a great guy. So I learned a lot from Rick, too. So interesting. Here’s another one, Anthony. You know, you just mentioned the Signal Corps, my dad. And this is an important week for us. I mean, we really we’ve been meaning to have you on for a very long time. I mean, Liz obviously speaks the world of you and her experience at SoFi over the last couple of years since you became, you know, the head strategist and guy. And I have a tremendous amount of respect for all who served. And, you know, for me personally, my dad, who is actually probably the biggest mentor in my life, is a retired lieutenant colonel in the Army and Reserves. And he actually served in the late sixties at Fort Monmouth in the Signal Corps, just so you know. So shout out to that. The first time I ever saw the game of lacrosse as part of his reserve duty, he was on Fort Monmouth. This is probably in the early eighties, and he was taping a West Point Prep lacrosse game. How’s that? So he used to drag me along back in the day. All right, man, before we get out of here, though, we got to talk a little bit about, you know, all these big CEOs of big banks. They got all this stuff to say. They got weather forecasts about the economy, this and that or whatever. What are you seeing? And one of the things we just talked about, the market share that you’re gaining, the way in which you make decisions about customers and lending and all the other products that you guys have introduced over the last couple of years. You’re seeing a lot of different consumer behavior and you’re probably doing it with a lot of data that you guys have obviously built. These systems you’re going to build out SoFi here. What are some of the things that you’re seeing? Do you think there’s any major misnomers? Do you think the markets have it wrong? You know, we have the situation where none of us can remember the last time that yields, where the Fed funds clearly where they were and the pace in which they’ve gone up, the pace in which the stock market has gone down for all of this year. And there’s a bunch of other things going on in the macro markets, currencies, commodities. What’s your take here? You know, you got a lot of employees. You got a lot of members. And and again, you’re a CEO of a publicly traded company. What do you see seeing right now? [00:36:51][128.3]
Anthony Noto: [00:36:51] Yeah, what we talked about on our earnings call is that, you know, with rates as high as they are and they’re continuing to increase, there’s a lot of demand. For people refinancing into fixed rate debt at a variable rate debt and into term debt, they’re trying to lower their overall cost. And so we’re seeing great demand from consumers that want to use what we call our personal loan product. It had another record quarter. It’s a it’s a product we’re really disciplined on, but it helps people aggregate all of their debt term and out over a longer period of time and lower their cost, their monthly dollar amount cost. It also allows them to get a revolving rate debt. So that product has really benefited from this environment because we have a bank license now, we can offer a really attractive interest rate in checking and savings. And so having a 2.5 percentage rate in checking and 3% in savings has allowed us to really drive a significant amount of new checking in savings account openings, which has driven our deposits. The deposits that we have are a much lower cost of funding for our loans than if we borrow from the big bank. So it’s allowing us to loan more, but it’s also allowing us to hold those lines so we maximize the value that we generate from net interest margin. In addition to that, the interest rates that we offer are really only available if we make you make us your primary bank, which we require direct deposit. And so because we’re getting so much high quality checking savings accounts, we’re also seeing really high levels of spending. And we’re starting to annualize in the billions of spending dollars, which also generates revenue. But it also gives us great data on what else that consumers are doing as it relates to investing or as it relates to paying mortgage payments or as it may relate to them overspending. And we can then give them advice about other products so they can cross buying to other areas. So we’re really seeing the combination of the checking savings account and the lending products working together because we have such a unique value proposition in this marketplace. A lot of the big banks don’t even do unsecured personal loans, so it’s not even a product they can offer. In addition to that, our invest product is a great way for people to get access to the market in a diversified way, the way they should invest. So we’re a one stop shop for investing. So not only do we offer fractional shares and some very unique ETFs, we also offer robo accounts. We offer cryptocurrencies as well, which we want to be a very small portion of your allocation. Plus we have insurance and a credit card, so it’s a one stop shop that allows people to better manage what they’re doing. And as they use one product, we build trust and reliability with them. And and then they they take on the second products. We’re benefiting from the cost by buying as well. What I’d say in the macroeconomic environment, you know, I don’t know if the markets have it right or not because it’s not entirely clear to me what the market is thinking. Do I think we will have a GDP growth next year? Do I think the market will have EPS earnings right now? I think the market’s trading at just above 16 times 2023. And consensus EPS growth is is for growth of about 3%. We’re not planning out 3% EPS growth. We’re we’re planning on flat to down EPS growth and multiple contraction down to about a 15 times multiple because that’s been the historical multiple. So when people ask me and I always look at the glass half empty as opposed to glass full based on the other challenging times we went through. So the way I think about it is GDP growth will probably not exist next year. It’s probably going to be negative, but I think it’s low single digits negative. And I think in that environment we’ll be able to do a great job helping members. And I do think the market does have some multiple contraction still in additions to earnings revisions and so there’s a forecast for growth. So I don’t think we’ve seen the bottom yet, but I also believe that the Fed is moving aggressively and at the same time that they’re raising rates and trying to dampen the economy that bring inflation down. We’re also seeing companies not hiring as much. And so that’s going to reduce demand as well. And the supply chain has been trying to crank back up the amount of supply for the last two years since the pandemic started. And we were able to get back into manufacturing, into warehouses, and that will actually help inflation, I think, come down more than people think. And never in the history before have we had such a contraction in manufacturing and supply as we did during the pandemic. And so I believe a lot of the economic forecasters and a lot of the market pundits don’t know how to factor that in. And I think that is a wildcard on where we are in the supply chain and where we are on inventory levels. But you saw in the second quarter results, a lot of the big consumer companies were complaining about too much inventory, about too much supply. Well, that’s going to bring prices down eventually. [00:41:21][270.1]
Guy Adami: [00:41:22] I started this by saying how I used to go to West Point football games as a kid. I’ve never been to an Army Navy game, but I just want you to reflect, if you think about being on the field of those games, teammates and guys that you played against. Some of these men lost their lives in battlefields many thousand miles away. So it’s such a special thing. What what is the Army Navy game mean to you? What was it like playing in that game? [00:41:49][26.9]
Anthony Noto: [00:41:50] I get chills just just thinking about it. My senior year was 19 December of 1990. We played there are many of the game, I think it was on December 7th, ironically. If you go back to December 1990, we had tens of thousands of troops deployed to the Middle East, actually to Saudi Arabia. Saddam Hussein had attacked Kuwait, had taken over that country. And we were there on the precipice of war. So it was a really heightened time about the Army-Navy game. And we had teammates and friends and classmates and others that were deployed into harm’s way, including our own team doctors. So it was a very emotional time period in our country about about to go to war. The game was always emotional the prior three years. It’s the last game you’ll play as a football player. You know, everyone has some relationship with someone from the Army or the Navy. And so it’s a game that’s America’s game. It means something to everybody. And you really want to deliver for the seniors. You want them to be able to say, for the rest of our lives, we beat Navy our senior year. And so there’s a lot of emotion. There’s a lot of camaraderie. It’s a great week. My senior year, I was, you know, starting at inside linebacker. It’s going to be my last game. I need to have knee surgeries, ACL reconstructions of both knees after the game. And I just said, You know what, screw it. I’m going to have the time of my life this last week. I’m doing every crazy thing cadets do during Army-Navy week. I’m not going to be the football player up there keeping myself safe. I did the Bryan and Jockstrap rally. I did the gantlet. I did it all. And there’s you know, it was a I lived every minute Army-Navy week and the game itself. It’s like it was like an out-of-body experience. And the team we played against Navy, we both had the same records. And whoever won that game was going to have a winning record. And we really had a chance to go to a bowl game and lost a tough battle to Air Force at home. And they went to the Liberty Bowl to play Ohio State. And we did not go to the Liberty Bowl, but we still had a winning record because we won that game. But the quarterback in another team, a guy named Alton Grizzard, was a four year starter, went on to become a Navy SEAL that was killed tragically. But he was a four year starter, broke all of Staubach records, and he was a competitive guy. And I watched him play for four years on the field, on the other side of the field. So I really wanted to play against the Navy team, but I really wanted to beat him was like beating your brother. So it was a it was a phenomenal game. It came down to the wire. And the part of the story that makes it even better is the year before we were favored to win, and we ended up having a ton of injuries during the game and prior to the game. And all injuries singlehandedly took a really crappy Navy team down the field and they kicked a field goal with 11 seconds left to beat us. And our senior class that year were great football players. They led us to the Sun Bowl the year before against Alabama. We launched by a point to be in that locker room after losing that way and having those seniors have to hold out for the rest of our lives, it was it was like a funeral. I mean, we all cried. All hundred of us were crying for, you know, a very long period of time. So our senior year, there’s a lot of emotions wrapped up for all those different reasons. And we were fortunate to win third two, 2010 and something that, you know, we’ve been able to take with us for the rest of our lives. And someone asked, Did you beat Navy your senior year? God damn right we did. [00:44:58][187.8]
Guy Adami: [00:44:59] Anthony, thank you for your service to our country. Thank you, SoFi, for your support of risk reversal media. Thank you for your time with Dan and I here on on the tape. And you’ve done amazing things in your life, in your career. My sense is are more amazing things yet to come. So thank you so much, Anthony. [00:45:15][16.0]
Anthony Noto: [00:45:16] Thank you, Dan and Guy. I really appreciate it. [00:45:17][1.4]
Guy Adami: [00:45:20] Thanks once again to CME Group and I connections for sponsoring this episode of On the Tape. If you like what you heard, make sure you hit, follow and leave us a review. It helps people find our show and we love hearing from you can also email us at on the tape at risk reversal dot.com any time. Follow and connect with us on Twitter at on the tape pod and we’ll see you next time. [00:45:44][23.5]
Dan Nathan: [00:45:45] On the tape is a risk reversal media production. This podcast is for informational purposes only. All opinions expressed by me and Nathan Guy, Danny, Danny Moses and any other participants are solely our opinions and should not be relied upon for specific investment decisions. [00:45:45][0.0]
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