Silicon Valley Bank shares fall after launching stock sale

Shares of the Silicon Valley bank plunged 60 percent on Thursday, a day after it launched a $2.25 billion stock sale to shore up its balance sheet as it grapples with dwindling deposits from technology start-ups. Is.

Shares of SVB Financial Group, the parent company of the Silicon Valley bank, posted their biggest ever drop, wiping $9.6 billion from the banking conglomerate’s market capitalization, after it accepted huge losses on the sale of securities as it Tried to raise cash.

SVB said on Wednesday that it made a loss of about $1.8 billion on the sale of about $21 billion of securities, which represents about 80 percent of its securities portfolio marked as available for sale.

The decline spread the contagion more widely to financial stocks, drawing attention to the potential impact that rising interest rates could have on net interest income at other banks. The four biggest 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 the US venture-backed tech and life sciences companies, is suffering from a downturn in venture capital funding, as well as cash crunch on many of its clients and losses on investments when rates were at rock-bottom. level.

Chief executive Greg Baker told investors on Wednesday: “While VC deployments have tracked our expectations, client cash burn remained high and increased in February, resulting in fewer deposits than forecast.”

He added that the bank had taken action to strengthen its financial position “as we expect continued high interest rates, pressure on the public and private markets, and increased levels of liquidity from our customers as they withdraw their funds.” invest in businesses”.

Chris Kotovsky, an equity analyst at Oppenheimer, said SVB “painted itself into a corner” because of its large exposure to rising rates.

This stems from a decision made at the peak of the tech boom to park $91 billion in long-dated securities such as US Treasuries, which are considered safe but are now worth less than what the SVB bought. is because the Federal Reserve has increased. Rates.

Kotovsky said that SVB was an “outlier” in terms of its vulnerability to rates compared to the rest of the US banking industry.

The US banking industry has suffered $620bn in unrealized losses on securities holdings as a result of rising interest rates, according to the Federal Deposit Insurance Corporation. Its chairman Martin Gruenberg said on 6 March that unrealized losses on securities “meaningfully reduced the perceived equity capital of the banking industry”.

Some venture capital firms told the Financial Times that they were worried about the fall in the value of SVB’s shares and were advising some of their portfolio companies to consider withdrawing a part of their deposits from the lender. Others, however, said they are not offering this advice to their portfolio companies.

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

In raising the capital, SVB said it planned to sell $1.25 billion of its common stock and $500 million of mandatory convertible preferred shares to investors, slightly less diluted for existing shareholders.

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

Moody’s on Wednesday downgraded SVB’s credit rating, citing “significant changes” in the bank’s funding and profitability, suggesting a “higher tolerance for risk in its financial strategy and risk management” than the agency previously had.

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