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SVB Financial Tanks after Strategic Business Update

Last updated: 9:48AM EST

SVBI’s troubles seem to be exacerbated as according to a CNBC report, the bank could be in discussions to sell itself as the bank’s efforts to raise capital have failed. The report stated that large financial institutions could be interested in acquiring the bank.

First published: 5:55AM EST

The bloodbath continued for SVB Financial Group (NASDAQ: SIVB) stock as shares tanked by more than 40% in pre-market trading on Friday after the stock lost more than half of its value yesterday.

The Silicon Vally Bank has rattled investors as it gave a strategic update and talked about a restructuring of its balance sheet to ” increase asset sensitivity to take advantage of the potential for higher short term rates, partially lock in funding costs, better protect net interest income (NII) and net interest margin (NIM), and enhance profitability.”

The Bank also stated that it has sold all its Available for Sale (AFS) securities portfolio and is looking at a capital raise of $1.75 billion through a public offering that could be between common equity and mandatory convertible preferred shares. SVB stated that as a part of this capital raise, General Atlantic, a global growth equity fund and a longstanding client of SVB has committed to invest $500 million on the same economic terms as its common offering for a total raise of $2.25 billion.

The Bank stated that it was doing this as it expects ” continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.”

In more disappointment for SVB investors, the Bank also announced that it expected a decline in double-digit percentage in deposits in FY23 and lost $1.8 billion in a bond sale of $21 billion. This loss was because the bank had purchased the bonds just before rising interest rates made them less valuable. 

As of December 31, 2022, around 50% of venture capital (VC) backed tech and life sciences companies bank with SVB. The above actions by the bank prompted many VC firms, including Peter Thiel‘s Founders Fund to move their money out of the Bank and many VCs have also urged startup founders to do the same.

However, SVB CEO Gregory Becker urged clients in a call on Thursday to “stay calm” amid concerns about the Bank’s financial position. Becker added, “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble that would be a challenge.”

Concerns about SVB prompted a bank stocks sell-off which resulted in Morgan Stanley analyst Manan Gosalia trying to assuage investors by stating that “we do not believe there is a liquidity crunch facing the banking industry, and most banks in our coverage have ample access to liquidity.”

However, regarding SVB, the analyst commented that the current pressures on the stock are “highly idiosyncratic and should not be viewed as a read-across to other banks.” The analyst has assigned a Sell rating to the stock with a price target of $190 implying a 79.2% upside potential at current levels. Gosalia’s price target is the lowest on the Street.

Gosalia added that while he has “always believed that SIVB has more than enough liquidity to fund deposit outflows related to venture capital client cash burn,” the Sell rating on the stock is a reflection of some of its liquidity sources including “sweep accounts and wholesale borrowings [that] are expensive in a higher-for-longer rate environment, and represent a drag to earnings until the VC funding environment improves.”

Overall, other analysts on Wall Street remain cautiously optimistic about SIVB stock with a Moderate Buy consensus rating based on 10 Buys, four Holds and one Sell.

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