Silicon Valley Bank shares fall on stock-sale plan to stem cash crunch

  • Deposits fall faster than forecast – SVB
  • Raising Capital, PE Injection, Asset Restructuring
  • The stock fell more than 50% in afternoon trading

March 9 (Reuters) – Shares of SVB Financial Group (SIVB.O) plunged more than 62% on Thursday, a day after the lender launched a $1.75 billion share sale to shore up its balance sheet and raise funds Navigated dwindling deposits from startups struggling to make ends meet. Increased cost.

Shares were on track for their biggest losses in 25 years as the bank said venture capital funding could remain constrained in the near term, while Chief Executive Greg Baker said consumption of cash by customers had increased in February.

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.

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The funding winter is the result of high inflation, along with a steady increase in borrowing costs by the Federal Reserve last year.

SVB’s stock fell nearly 63% at one point during trading on Thursday, hitting its lowest level since August 2016, after the lender slashed its 2023 outlook and launched a share selloff.

SVB’s 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 their 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.

VC investors are more hesitant to sign large checks as the stock market plummets, especially in stocks of high-flying technology firms.

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.

California-based SVB sold $21 billion of its securities portfolio, resulting in an after-tax loss of $1.8 billion in the first quarter.

Funds raised from the sale will be reinvested in short-term loans and the bank will double its term lending to $30 billion.

“We are taking this action because we expect continued high interest rates, pressure on the public and private markets, and increased levels of cash burn from our customers,” Baker said.

“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 capitalised”.

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 in Fairhope, Alabama.

Reporting by Ananya Mariam Rajesh and Niket Nishant in Bengaluru, Tom Westbrook in Sydney, Matt Tracy in Washington, Nupur Anand and Chuck Mikolajk in New York; Editing by Jane Merriman, Sriraj Kalluvilla, Arun Coyyur, Lannh Nguyen and Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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