$80 billion (60%) in value was wiped from the share price of SVB Financial ($SIVB), as the bank raised capital, via a share sale, to make up for a sale of loss making US treasury portfolio of about $21 billion. SVB, led by CEO Gregory Becker, had call it’s venture capital investors to reassure them of the safety of their money.
The loss making portfolio of mostly US treasuries was yielding an average of 1.79% return, which was too far below the current US 10Y yield of 3.9%, approximately. To shore up it’s balance sheet, $SIVB launched a share sale of $1.75 billion on Wednesday.
The company’s stock collapsed to the lows 2016, and after the market closed shares slid another 26% in extended trading. $SIVB’s investors were concerned over whether the capital raise would be sufficient given the tough situation with many technology startups that the bank serves.
Some startups have been pulling out their funds, one example, a San Francisco based startup wired their funds out of $SIVB on Thursday, according to information from Reuters. Some startups advising their founders to pull out their money from $SIVB as a precautionary measure, the sources added. One of them is Peter Thiel’s Founders Fund, according to some sources in the know.
However, the Information publication reported the bank told four clients that transfers could be delayed.
SBV did not respond to multiple requests for comment.
A crucial lender for early-stage businesses, $SIVB is the banking partner for nearly half of U.S. venture-backed technology and healthcare companies that listed on stock markets in 2022.
In a letter to investors, quoted by Reuters, Becker said: “While VC (venture capital) deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted.”
In a separate deal, SVB said private equity firm General Atlantic will buy $500 million worth of its shares.
Price Action
$SIVB stocks have lost over 63.19% in value as it took out the lows of 2020.
The situation on the daily chart point to a likely correction back up, at least temporarily. The gap down from yesterday means that price could go back up as high as $266.86.
Macros to consider
Elevated inflation and the consequent increase of interest rates by the US Federal Reserve is important to keep in mind. The projections are for a continuation of hikes until late in the year. XLF and XLK, finance and technology, two area greatly affected by inflation and rates, are the two sectors $SIBV is heavily involved in.
The shares of other large banks and the broader finance index also tanked.
SPDR select fund XLF -6.1%
First Republic $FRC.N -16.5%
Zion Bancorp $ZION.O -12%
Wells Fargo $WFC.N -6%
JP Morgan Chase $JPM.N -5.4%
Bank of America $BAC.N -6%
Citigroup $C.N -4%
Over $80 billion in stock market value from the 18 banks making up the S&P 500 banks index (.SPXBK), including a $22 billion drop in the value of JPMorgan.
$SIVB said that funds raised from the stock sale will be re-invested in shorter-term debt and the bank will double its term borrowing to $30 billion.
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