SVB Financial Group (SIVB.O) scrambled Thursday to reassure its venture capital clients that their money was safe after raising capital, sending its stock plunging 60% and wiping out more than $80 billion in bank shares. contributed to the elimination of
SVB, which does business as Silicon Valley Bank, launched a $1.75 billion share sale on Wednesday in a bid to strengthen its balance sheet. It said in an investor prospectus that it needed the proceeds to plug a $1.8 billion hole caused by the sale of a $21 billion loss-making bond portfolio, mostly U.S. bonds. Treasury included. The portfolio was giving it an average return of 1.79%, which is much lower than the current 10-year Treasury yield of around 3.9%.
Investors in SVB’s stock were concerned about whether the capital raise would be sufficient given the deteriorating fortunes of several technology startups served by the bank. The company’s stock fell to its lowest level since 2016, and shares declined 26% in extended trading after the market closed.
SVB CEO Gregory Baker has been calling to assure customers that their money is safe at the bank, according to two people familiar with the matter.
Sources said some startups are advising their founders to withdraw their money from SVBs as a precautionary measure. One of them is Peter Thiel’s Founders Fund, according to the source.
A San Francisco-based startup told Reuters that they successfully removed all of their funds from SVB on Thursday afternoon and that as of 4 p.m. Pacific Time on Thursday, the funds appeared as a “pending” incoming wire to their other bank account.
However, the Information publication reported that the bank told four customers that the transfer could be delayed.
SVB did not respond to multiple requests for comment.
An important lender to early-stage businesses, SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies that list on stock exchanges in 2022.
“While VC (venture capital) deployments have tracked our expectations, client cash burn has increased and escalated in February, resulting in lower deposits,” Baker said in a letter to investors seen by Reuters. “
Wide Risk?
The funding winter is the result of high inflation, along with a steady increase in borrowing costs by the Federal Reserve last year.
The SVB turmoil raised investor concerns about broader risks in the sector.
Shares of San Francisco-based bank First Republic (FRC.N), sank more than 16.5% after hitting its lowest level since October 2020, becoming the second biggest loser in the S&P 500 index. Zion Bancorp (ZION.O) dropped more than 12% and the SPDR S&P Regional Banking ETF (KRE.P) slid 8% after hitting its lowest level since January 2021.
Major US banks were also hit, with Wells Fargo & Co (WFC.N) down 6%, JPMorgan Chase & Co (JPM.N) down 5.4%, Bank of America Corp (BAC.N) down 6% and Citigroup Inc Happened. CN) down 4%.
Thursday’s drop in stock market value from the 18 banks that make up the S&P 500 Bank Index (.SPXBK) exceeded $80 billion, including a $22 billion decline in JPMorgan’s value.
In a separate deal, SVB said private equity firm General Atlantic would buy $500 million worth of its shares.
Meanwhile, rating agency Moody’s downgraded the bank’s long-term local currency bank deposits.
Natalie Trevithick, head of investment grade credit strategy at investment advisors Payden & Rygel, said bank bonds are not performing as badly as equities.
Trevithick said, “Future performance is going to be dependent on the news, but I don’t expect them to recover properly in the near term. It’s not cheap enough to hold back a lot of buyers.”
Despite the latest concerns, analysts at brokerage firm Wedbush Securities said the bank had received significant proceeds from the sale of securities and the capital raise.
“We do not believe SIVB is in a liquidity crisis,” Wedbush analyst David Chiaverini said in a report, referring to the company’s trading symbol.
Position for higher rates
SVB said the funds raised from the stock sale would be reinvested in short-term debt and the bank would double its term lending to $30 billion.
“We are taking this action because we expect higher interest rates, stressed public and private markets, and increasing levels of liquidity from our customers,” Baker said in the letter.
“When we see a return to balance between venture investment and cash burn – we will be well positioned to accelerate growth and profitability,” he said, adding that SVB is “well capitalized”.
The bank also forecast a “mid-thirties” percent decline in net interest income this year, up from a forecast of a “high teens” decline seven weeks ago.
Bank stocks remained under pressure from “risk-off sentiment” and questions about systemic risks to the industry, said John Luke Tyner, a fixed-income analyst at Aptus Capital Advisors.