Silicon Valley Bank shares fall on stock sale plan to tackle cash burn

March 9 (Reuters) – SVB Financial Group ( SIVB.O ) shares fell 42% on Thursday, a day after the lender launched a $1.75 billion share sale to shore up its balance sheet and navigate falling deposits from struggling startups amid increased expenses. .

Shares were on course for their biggest loss in 25 years as the bank said venture capital funding could remain limited in the near term, while Chief Executive Officer Greg Becker said cash spending by customers increased in February.

SVB is an important lender for early-stage businesses, and is the banking partner for almost half of US venture-backed technology and healthcare companies listed on the stock exchange in 2022.

“While VC (venture capital) deployments have followed our expectations, client cash spending has remained high and increased further in February, resulting in lower-than-expected deposits,” Becker said in a letter to investors.

The funding winter is the result of a relentless increase in borrowing costs from the Federal Reserve over the past year, as well as increased inflation.

VC investors are also more hesitant to sign big checks because of a rout in the stock market, especially in the stocks of high-flying tech firms.

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

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

Natalie Trevithick, head of investment grade credit strategy at investment adviser Payden & Rygel, said the bank’s bonds did not fare as badly as its equity.

“Future performance is going to depend on news, but I don’t expect them to recover properly in the near term. It’s not quite cheap enough for a lot of people who are interested in coming back,” Trevithick said.

California-based SVB has sold $21 billion of its securities portfolio, which will result in an after-tax loss of $1.8 billion in the first quarter.

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

“We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and increased cash spending levels from our customers,” Becker said.

“Once 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 capitalised”.

The bank also predicted a percentage decline in net interest income in the mid-thirties this year, greater than the “high teens” forecast seven weeks earlier.

Reporting by Ananya Mariam Rajesh and Niket Nishant in Bengaluru, Tom Westbrook in Sydney and Matt Tracy in Washington; Editing by Jane Merriman, Sriraj Kalluvila and Arun Koyyur

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