Silicon Valley Bank shares slide on share-sale plan to deal with cash burn

  • Deposits fall faster than forecast – SVB
  • Capital raising, PE injection, asset restructuring assistance
  • Shares fell 42% in afternoon trade

March 9 (Reuters) – Shares in SVB Financial Group ( SIVB.O ) tumbled 42% on Thursday, a day after the lender launched a $1.75 billion share sale to shore up its balance sheet to steer dwindling deposits from startups struggling for funding amid increased costs. .

Shares suffered their biggest loss in 25 years as the bank said venture capital funding could be constrained in the short term, while Chief Executive Greg Becker said in February that customer cash burn had increased.

As an important lender to early-stage businesses, SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies listed on stock exchanges by 2022.

“While VC (venture capital) deployments tracked our expectations, customer cash burn picked up and increased further in February, resulting in lower-than-forecast deposits,” Becker said in a letter to investors.

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Funding winter is the fallout from the Federal Reserve’s relentless increase in borrowing costs and high inflation over the past year.

VC investors are very reluctant to sign large checks because of the stock market’s failure, especially in high-end technology companies.

In a separate deal, private equity firm General Atlantic will buy $500 million worth of shares, SVB said.

Meanwhile, ratings agency Moody’s downgraded the bank’s long-term local currency bank deposits.

Natalie Trevithick, head of investment-grade credit strategy at investment adviser Payden & Rygel, said the bank’s bonds were not as bad as equity.

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“Future performance will be news-driven, but I don’t expect them to recover properly any time soon. It’s not cheap enough for a lot of buyers to come back,” Trevithick said.

California-based SVB sold $21 billion of its portfolio of bonds, which would have resulted in an after-tax loss of $1.8 billion in the first quarter.

Funds raised from the sale will be reinvested in short-term debt and the bank will double its term debt to $30 billion.

“We are taking these steps because we expect continued high interest rates, stressed public and private markets and elevated cash burn levels from our customers,” Becker said.

“As we see a return to balance between venture capital and cash burn – we will be well positioned to accelerate growth and profitability,” he said, noting that SVB is “well capitalized”.

The bank forecast a “mid-thirties” percentage drop in net interest income this year, up from the “high-teens” forecast seven weeks ago.

Reporting by Ananya Mariam Rajesh and Niketh Nishant in Bangalore, Tom Westbrook in Sydney and Matt Tracy in Washington; Editing: Jane Merriman, Sriraj Kalluvila, Arun Koiyur

Our Standards: Thomson Reuters Trust Principles.

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