- Deposits fall faster than predicted – SVB
- Capital raise, PE injection, asset restructuring to help
- The stock plummets 42% in afternoon trading
March 9 (Reuters) – Shares of SVB Financial Group (SIVB.O) fell 42% on Thursday, a day after the lender launched a $1.75 billion share sale to strengthen its balance sheet and deal with declining deposits from Startups Struggling for Money Amid Increased Spending.
The stock was heading for its biggest loss in 25 years as the bank said near-term venture capital funding could remain limited, while Chief Executive Greg Becker said customer cash burn increased in February.
SVB is a critical lender to early-stage companies and is the banking partner for nearly half of the U.S. venture capital-backed technology and healthcare companies to go public by 2022.
“While VC (venture capital) deployment has followed our expectations, customer cash burn remained high and further increased in February, resulting in lower-than-expected deposits,” Becker said in a letter to investors.
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The funding winter is a result of a relentless increase in borrowing costs by the Federal Reserve over the past year, as well as increased inflation.
VC investors are also more reluctant to sign big checks because of stock market defeat, particularly in the shares of high-flying technology companies.
In a separate deal, SVB said private equity firm General Atlantic will buy $500 million worth of stock.
Meanwhile, rating agency Moody’s cut the bank’s long-term local currency deposits.
Natalie Trevithick, head of investment grade credit strategy at investment adviser Payden & Rygel, said the bank’s bonds did not perform as badly as stocks.
“Future performance will be news dependent, but I don’t expect them to recover well anytime soon. It’s not cheap enough for a lot of buy-the-dip people to come back,” Trevithick said.
California-based SVB sold $21 billion of its securities portfolio, resulting in an after-tax loss of $1.8 billion in the first quarter.
The money raised from the sale will be reinvested in short-term debt and the bank will double its maturity to $30 billion.
“We are taking these actions because we expect interest rates to continue to rise, the public and private markets to come under pressure, and our customers’ cash burn levels to rise,” said Becker.
“If we see a return to balance between risk investing and cash burn, we will be well positioned to accelerate growth and profitability,” he said, noting that SVB is “well capitalized.”
The bank also predicted a percentage decline in net interest income this year from the mid-1930s, larger than the decline in the high teens predicted seven weeks earlier.
Reporting by Ananya Mariam Rajesh and Niket Nishant in Bengaluru, Tom Westbrook in Sydney and Matt Tracy in Washington; Edited by Jane Merriman, Sriraj Kalluvila and Arun Koyyur
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