Silicon Valley Bank shares fall after launch of stock sale

Shares of Silicon Valley Bank plunged 60% on Thursday, a day after launching a $2.25 billion stock sale to shore up its balance sheet as it grapples with declining filings of technology start-ups.

Shares of SVB Financial Group, the parent company of Silicon Valley Bank, posted their steepest decline ever, wiping $9.6 billion off the banking group’s market capitalization, after admitting large losses on the sale securities while trying to raise funds.

SVB said on Wednesday it lost about $1.8 billion on the sale of about $21 billion in securities, which represented about 80% of its portfolio of securities marked as available for sale.

The decline sparked contagion among financial stocks more broadly, drawing attention to the potential effect 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 on Thursday.

SVB, the banking partner of half of America’s venture capital-backed technology and life sciences companies, has suffered from a slowdown in venture capital funding, as well as cash burn at many its customers and losses on the investments it made when interest rates were at their lowest. lower levels.

Chief executive Greg Becker told investors on Wednesday: “While the deployment of venture capital has followed our expectations, client cash burn has remained high and increased further in February, resulting in Deposits lower than expected.”

He said the bank had taken steps to strengthen its financial position “because we expect ever-higher interest rates, public and private market pressures and high levels of cash burn from our clients as they invest in their businesses”.

Chris Kotowski, equity analyst at Oppenheimer, said SVB had “painted itself into a corner” due to its high exposure to rising rates.

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

Kotowski said SVB was an “outlier” in terms of rate vulnerability compared to the rest of the US banking sector.

The US banking sector has $620 billion in unrealized losses on securities holdings due to rising interest rates, according to the Federal Deposit Insurance Corporation. Its chairman, Martin Gruenberg, said on March 6 that unrealized losses on securities had “significantly reduced the reported capital of the banking sector”.

Some venture capitalists have told the Financial Times they are concerned about the decline in the value of SVB shares and are advising some of their holding companies to consider withdrawing some of their deposits from the lender. However, others said they don’t give this advice to their portfolio companies.

Shares of the lender continued to decline in after-hours trading, falling about 20% to less than $90 per share.

During the fundraising, SVB announced plans to sell $1.25 billion of its common stock to investors and an additional $500 million of mandatory convertible preferred stock, which is slightly less dilutive to existing shareholders.

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

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

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