SVB Financial falls more than 50% as tech bank looks to raise more cash
- Trading in the stock was halted due to volatility several times during the session.
- The company said in a letter from CEO Greg Becker on Wednesday that it has sold “substantially all” of its available-for-sale securities.
- The sale of securities will result in a loss after tax of USD 1.8 billion, says SVB’s letter.
In this photo illustration of the TradingView stock chart of SVB Financial Group shown on a smartphone with the SVB Financial Group logo in the background.
Igor Golovniov | Lightrocket | Getty Images
Shares in technology-focused bank SVB Financial plunged more than 50% on Thursday after the company announced a plan to raise more than $2 billion in capital to help offset losses on bond sales.
Trading in the stock was halted due to volatility several times during the session, and the drop brought SVB’s market value below $8 billion.
See diagram…
SVB Financial fell sharply after the bank announced a plan to raise more cash.
The company said in a letter from CEO Greg Becker on Wednesday that it has sold “substantially all” of its available-for-sale securities, seeking to raise $2.25 billion between common stock and convertible preferred stock.
The investment fund General Atlantic has already committed to contribute 500 million dollars of the total amount, the letter states.
The sale of securities will result in an after-tax income loss of $1.8 billion, SVB’s letter said, but the company added that the plan to reinvest the proceeds should be “immediately accretive” as the bank reshapes its balance sheet.
The company previously reported $28.8 billion in available-for-sale securities on its balance sheet at the end of December, as well as $95.3 billion in held-to-maturity securities. The available-for-sale securities were mostly US government bonds.
The Federal Reserve has been aggressively raising interest rates over the past year, which can cause the value of bonds to fall — especially those with many years to maturity. SVB said it is reinvesting the proceeds from the sale in short-term assets.
The bank cited higher interest rates and “increased cash consumption from our customers” as reasons for raising the new capital. The firm is heavily involved in startups, saying on its website that nearly half of all venture-backed technology and life science firms in the US bank with SVB.
Wells Fargo banking analyst Mike Mayo said in a note to clients that SIVB’s problems appeared to be caused by a “lack of funding diversification.” Higher interest rates, fears of a recession and a lukewarm IPO market have made it harder for startups to raise additional capital.
The dramatic decline for SVB comes shortly after crypto-focused bank Silvergate announced liquidation plans. SVB said in its letter that it has minimal exposure to crypto.
— CNBC’s Michael Bloom contributed to this report.
