Shares in Silicon Valley Bank’s parent company, SVB Financial Group, fell sharply on Thursday, heading for its biggest one-day sell-off since the dotcom boom, after the financial services company had The Santa Clara, California-based company disclosed large losses from stock sales and stock offerings intended to provide a boost to its balance sheet.
Bank
SIVB,
helps fund tech startups backed by venture capital firms, says it has taken “strategic actions” to shore up its financial position as rising interest rates dent increased pressure on public and private markets as customers face high levels of cash burn.
SVB also cut its first quarter guidance range for net interest income (NII) from $925 million – $955 million to $880 million – $900 million and net margin (NIM) from 1.85% – 1.95% down to 1.75% -1.79%. The average deposit reduction outlook has been increased to the low double-digit percentage range from the mid-digits.
CEO Greg Becker wrote in a letter to shareholders: “While the VC rollout has lived up to our expectations, customer cash burn remains high and is expected to grow further in May. 2, resulting in lower-than-expected deposits.” “The related shift in our funding mix to more deposits, higher costs and short-term loans, coupled with higher interest rates, continues to put pressure on NII and NIM.”
Stocks up 41% in morning trade, outperforming S&P 500
SPX,
lost by wide range. It is suffering its biggest one-day sell-off since a record 42.3% drop on September 10, 1998.
SVB said late Wednesday that it had sold about $21 billion worth of available-for-sale securities. As of December 31, the company has $26.1 billion in AFS securities.
The sale would result in a loss of about $1.8 billion in the first quarter of 2023, while the FactSet consensus for first-quarter net income was $274.8 million.
“Selling nearly all of our AFS securities will allow us to increase asset sensitivity, partially limit funding costs, and better protect net interest income (NII) and net profit margins. NIM) from the impact of higher interest rates, while enhancing profitability,” writes Becker.
Separately, the company said it plans to offer $2.25 billion in equity securities to bolster its financial position.
The offering includes $1.25 billion worth of common stock, which represents 13.4 percent of the company’s current market capitalization of $9.33 billion, and $500 million worth of convertible preferred shares. USD. SVB also signed an agreement with private equity investor General Atlantic to purchase $500 million worth of common stock in a separate transaction.
“Our financial position allows us to take strategic actions to further strengthen that position now and over the long term,” the bank said in a statement.
JPMorgan analyst Steven Alexopoulos cut his share price target from $300 to $270 but reiterated the overestimation he has given SVB for at least the past three years. The stock target is above Tuesday’s close of $267.83.
“Although this is another setback that will lead to another negative impact [earnings-per-share] revised, we continue to believe that it remains a question of when rather than whether the fringe dry powder warfare keg will begin to be deployed at a much faster rate,” Alexopoulos wrote in a note. Note to customers.
Shares are headed for their lowest close since April 2020, having fallen 28.3% over the past three months and down 70.7% over the past 12 months. For comparison, the Financial Select Sector SPDR exchange-traded fund
XLF,
has lost 7.1% over the past year and the S&P 500 has dropped 6.6%.
