Silicon Valley Bank shares fall after start of stock sale

Silicon Valley Bank’s shares plunged 60 percent on Thursday, a day after it launched a $2.25 billion share sale.

Shares in SVB Financial Group, the parent company of Silicon Valley Bank, posted their biggest drop ever, erasing $9.6 billion from the banking group’s market cap.

SVB announced on Wednesday that it lost about $1.8 billion on the sale of about $21 billion worth of securities, representing about 80 percent of its portfolio of available-for-sale securities.

The decline sparked broader contagion in financial stocks and drew attention to the potential impact that rising interest rates could have on other banks’ net interest income. The four largest US banks — JPMorgan, Citigroup, Wells Fargo and Bank of America — lost $52.4 billion in market value in Thursday’s trading.

SVB, the banking partner for half of US venture-backed technology and life sciences companies, is suffering from a slowdown in venture capital funding, a cash burn at many of its clients and losses on investments it made when the Interest rates were at a low point. lower levels.

Chief Executive Greg Becker told investors on Wednesday, “While VC deployment met our expectations, client cash burn remained high and continued to rise in February, resulting in lower than forecast deposits.”

He said the bank took action to strengthen its financial position “because we expect continued higher interest rates, pressure on public and private markets, and increased cash burn from our clients as they invest in their businesses.”

Chris Kotowski, an equity analyst at Oppenheimer, said SVB was “backed into a corner” because of exposure to soaring interest rates.

It stems from a decision made at the height of the tech boom to park $91 billion of its deposits in long-term securities like US Treasuries, which are considered safe but are now worth less than when SVB bought them. because the Federal Reserve has increased rates.

Kotowski said the SVB is an “outlier” in terms of its interest rate sensitivity relative to the rest of the US banking industry.

According to the Federal Deposit Insurance Corporation, the US banking industry has $620 billion in unrealized losses on securities holdings due to rising interest rates. Its chairman Martin Grünberg said on March 6 that unrealized losses on securities have “significantly reduced the reported equity of the banking industry.”

Some venture capital firms told the Financial Times they were concerned about the fall in the value of SVB shares and advised some of their portfolio companies to withdraw some of their deposits from the lender. Others, however, said they wouldn’t give that advice to their portfolio companies.

Shares of the lender continued to decline in after-hours trading, falling about 20 percent to below $90 a share.

In raising capital, SVB said it plans to sell $1.25 billion of its common stock to investors and an additional $500 million in mandatory convertible preferred stock, which is slightly less dilutive to existing shareholders.

Private equity firm General Atlantic has also agreed to purchase $500 million of common stock in the bank in a separate private transaction contingent on the closing of the stock offering.

Moody’s downgraded SVB’s credit rating on Wednesday, citing “significant changes” in the bank’s funding and profitability over a short period of time, indicating “higher risk tolerance in its financial strategy and risk management” than the agency previously thought .