SoFi shares plunge after Eisman warns of credit 'disaster'
'Big Short' investor highlights securitization trigger breach as private credit concerns mount
Steve Eisman, the fund manager immortalized in "The Big Short" for predicting the 2008 financial crisis, has warned that SoFi Technologies faces securitization issues that could prove "potentially a disaster" for the digital lender.
The warning comes as SoFi's SCP 2025-1 securitization has breached its cumulative net loss trigger, reaching 2.97% losses against a preset threshold of 2.60%. When such triggers are exceeded, all subsequent payments from the loan pool are directed to securitization investors until they are fully compensated, cutting off revenue for the originating company.
"The thing that worries me is if you get a credit cycle, where does it show up?" Eisman said in a recent interview. "It shows up in private credit, and SoFi is right in the middle of it." He predicted that SoFi's 2025-2 securitization deal is also likely to breach its trigger soon.
The specific mechanism at the heart of Eisman's concern is central to SoFi's business model. The company originates consumer loans, bundles them into securities, and sells these debt packages to investors, profiting from the spread between the roughly 10% interest charged to borrowers and the approximately 5% paid to securitization investors. When loss triggers are breached, that spread evaporates.
SoFi closed the $697.6 million SCP 2025-1 securitization on February 28, 2025, issuing four classes of notes backed by personal loans from SoFi Bank, N.A., with ratings ranging from "AAA" to "BBB+" from Fitch Ratings and Morningstar DBRS. The breach represents a rapid deterioration in loan performance for a deal that closed just over a year ago.
Eisman's concerns extend beyond SoFi to the broader private credit market, which has grown to an estimated $2 trillion. He noted that all U.S. loan growth since 2008 has occurred in private credit rather than traditional banking, raising questions about how problems in this relatively opaque sector might ripple through the financial system.
SoFi shares, currently trading at $17.01 with a market capitalization of $21.5 billion, have already underperformed significantly. The stock is down more than 45% from its 52-week high of $32.73 and remains relatively close to its 52-week low of $8.60. The company is trading 5.3% below its 20-day simple moving average and 30.1% below its 100-day moving average, suggesting a weakening intermediate trend.
The warning from Eisman adds to recent pressure from short-seller Muddy Waters Research, which labeled SoFi a "financial engineering treadmill" last week and alleged that the company's 2025 adjusted EBITDA was 90% inflated, claiming the true figure was $103 million rather than the reported $1.05 billion. SoFi management responded by stating that Muddy Waters' claims demonstrated a "fundamental lack of understanding" of their business and indicated they might pursue legal action.
Short interest in SoFi has risen to 128.39 million shares, representing 10.29% of the public float. Despite the pressure, Chief Executive Officer Anthony Noto purchased 28,900 shares at $17.32 on March 17, while Chief Technology Officer Jeremy Rishel executed a "sell-options" transaction worth $4.48 million between March 16 and 18.
The convergence of a prominent short-seller report and warning from a respected credit market observer creates significant headwinds for a company that has positioned itself as a technology-driven alternative to traditional banking. SoFi's price-to-earnings ratio of 43.33 times trailing earnings, well above the 31.85 times forward multiple, suggests investors were already pricing in significant growth expectations that may now be in question.
Eisman differentiated the current situation from the 2008 crisis, suggesting that while private credit problems could be significant, systemic risk might be more contained, primarily affecting institutional investors and life insurance policyholders rather than the broader banking system. However, he noted increasing leverage within life insurance companies as a particular concern.