Shares of tech startup-heavy Silicon Valley Bank plunge 60%+ on stock sale plan

Shares of tech startup-heavy Silicon Valley Bank plunge 60%+ on stock sale plan

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Shares of SVB Financial Group Inc., the parent company of Silicon Valley Bank, plunged more than 60% today after the financial institution announced plans to sell $2.2 billion in stock.

The stock sale is part of an effort by the company to address recent losses in its securities portfolio.

“We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients,” Silicon Valley Bank Chief Executive Officer Greg Becker stated in a letter to shareholders obtained by Reuters. “When we see a return to balance between venture investment and cash burn – we will be well positioned to accelerate growth and profitability.”

Silicon Valley Bank is one of the most important financial institutions in the tech industry. It counts numerous startups and venture capital firms among its clients, along with many organizations in other sectors. Silicon Valley Bank estimates that its client base includes about half of all venture-backed tech and life sciences startups in the U.S.

The main component of the company’s newly announced $2.2 million stock sale is a $1.75 billion public equity offering. According to the Financial Times, Silicon Valley Bank plans to sell $1.25 billion of common stock and $500 million in convertible preferred shares to investors. The latter shares are less dilutive to existing investors than common stock. 

The remaining $500 million the bank is seeking will be raised in the form of an investment from private equity firm General Atlantic. The firm is buying common stock.

The proceeds from the $2.2 billion stock sale will help Silicon Valley Bank more easily manage recent losses in its securities portfolio.

When interest rates rise, bond prices tend to decrease. Silicon Valley Bank recently sold a large number of U.S. Treasury Bonds along with some foreign government debt and mortgage-backed securities. The bank disclosed late Wednesday that it expects to log a $1.8 billion after-tax loss on that sale, which was valued at $21 billion.

The assets sold in the transaction were so-called available-for-sale securities. Those are financial instruments that a company plans to sell before they mature. According to the Financial Times, Silicon Valley Bank still holds about $91 billion of held-to-maturity securities.

Another factor that may have contributed to the drop in the bank’s stock price today is its revised financial guidance. Earlier this year, the bank projected that its net interest income would fall by a “high teens” percentage in 2023. Silicon Valley Bank revised that estimate on Wednesday and is now expecting a decline in the “mid thirties” percentage range.

Also this week, Silvergate Capital Corp. announced plans to wind down its operations after experiencing steep losses in connection with its cryptocurrency investments. The bank was a major provider of financial services to cryptocurrency companies. Silvergate has stated that it plans to fully repay customer deposits.

Photo: Silicon Valley Bank

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