After a capital raise caused SVB Financial Group's stock to collapse 60% and over $80 billion in value to be lost from bank shares, the company scrambled on Thursday to reassure its venture capital clients that their money was safe.
Silicon Valley Bank, doing business as SVB, started a $1.75 billion share sale on Wednesday to strengthen its balance sheet. It claimed in an investor prospectus that it required the funds to close a $1.8 billion hole left by the sale of a $21 billion portfolio of loss-making bonds, primarily made up of U.S. Treasury bonds, that had to be sold. The average return from the portfolio was only 1.79%, considerably less than the current yield on the 10-year Treasury note of about 3.9%.
Given the declining fortunes of numerous technology startups that the bank supports, shareholders in SVB's stock worried about whether the capital raise would be adequate. After the market closed, shares of the company fell another 26% in extended trade, dropping to their lowest point since 2016.
According to two people with knowledge of the situation, Gregory Becker, the CEO of SVB, has been calling clients to reassure them that their money is secure with the bank.
According to the sources, some startups have been advising their founders to withdraw their funds from SVB as a precaution. One of the sources says one of them is Peter Thiel's Founders Fund.
One San Francisco-based startup told Reuters that they wired all of their money successfully out of SVB on Thursday afternoon, and by 4 p.m. Pacific Time, the money had appeared in their other bank account as a "pending" incoming wire.
But according to the Information magazine, the bank warned four clients that transfers might be delayed.
SVB did not answer several inquiries for comment.
SVB, a significant early-stage lender, is the banking partner for almost half of the technology and healthcare companies with U.S. venture capital backing that will list on stock markets in 2022.
In a letter to investors, Becker stated that 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."
The funding crisis is a result of the Federal Reserve's constant rise in borrowing costs and high inflation. Investors' worries about broader risks in the industry were stoked by the SVB turmoil, which saw declines in First Republic, Zion Bancorp, and the SPDR S&P regional banking ETF.
Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc. all saw declines of 6%, 5.4%, 6%, and 4%, respectively, among the top U.S. banks that were also impacted.
The 18 banks that make up the S&P 500 bank index lost over $80 billion in stock market value as a result of the downturn, with JPMorgan losing $22 billion in value. Separately, SVB announced that private equity firm General Atlantic would acquire its shares for $500 million.
Natalie Trevithick, head of investment grade credit strategy at Payden & Rygel, stated that the bank's bonds were not performing as poorly as the equity after Moody's downgraded the bank's long-term local currency bank deposit. Despite the worries, analysts at Wedbush Securities claimed that the bank had made a sizable profit from the sale of securities and capital raising. They don't think SIVB is experiencing a liquidity crisis.
Due to higher interest rates, volatile public and private markets, and increased cash burn rates, SVB announced that the proceeds from the stock sale would be reinvested in shorter-term debt and doubled its term borrowing to $30 billion. Additionally, the bank predicted that this year's net interest income would decrease by a percentage of "mid-thirties," which was higher than the "high teens" drop it had predicted seven weeks earlier. "Risk-off sentiment" and concerns about systemic risks continued to weigh on bank stock prices.