SVB Financial Group Shares Crater on Stock Sale Announcement

Shares of SVB Financial Group (SIVB) are cratering after the holding company for Silicon Valley Bank announced it was seeking to raise $2.25 billion in stock sales in order to shore up its financial position.

SVB said it plans to sell $1.75 billion of common equity and mandatory convertible preferred shares. In addition, it indicated that global growth equity fund and long-standing client General Atlantic is purchasing $500 million worth of stock.

In a letter to investors, CEO Greg Becker explained that the funds are needed because the bank expects “continued high interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.”

SVB is a major lender to startups, especially in the tech sector, and has been hurt as spending on them dropped. The company noted in its January investor call that it anticipated slow public markets, further declines in venture capital (VC) deployment, and an elevated cash burn in the first half of 2023.

However, Becker indicated that while VC spending has been as expected, “client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted.” He added that the related shift in SVB’s funding mix to more higher-cost deposits and short-term borrowing, along with higher interest rates, continues to pressure net investment income (NII) and net interest margin (NIM).

Changing Guidance

Becker said that SVB has lowered its outlook for current-quarter and full-year deposits, net investment income, net interest margin and expenses, while raising full-year core free income guidance.

Becker remained optimistic, arguing that while VC spending will likely remain constrained for the near term, “the innovation economy is better positioned today to weather a downturn than in prior cycles.”

SVB Financial Group shares are plunging 47%, and are down 74% over the trailing 12 months. They are at their lowest level since the pandemic crash in April of 2020.