SVB Investors Spooked By ‘Painful Vortex’ Of Little Information
SVB Financial Group — which until this week banked almost half of all US venture backed startups — continued its freefall on Friday.
(Bloomberg) -- SVB Financial Group — which until this week banked almost half of all US venture backed startups — continued its freefall on Friday as the company’s silence about a planned capital raise further spooked investors.
The company — which for months has been adamant that it wouldn’t significantly restructure its balance sheet — stunned investors Wednesday when it said it would issue $2.25 billion of shares and booked a $1.8 billion loss on the sale of substantially all of its available-for-sale securities. After shares of the company plummeted 60% on Thursday, analysts began questioning if the capital raise would even occur.
“What was likely planned to be nothing more than a portfolio restructure and capital raise has turned into a painful vortex of a lack of information along with a healthy dose of misinformation and questions on deposit flow,” Jon Arfstrom, an analyst at RBC Capital Markets, said in a note to clients.
He noted the plummeting share price will likely mean the bank will have to issue even more shares, further diluting the stock if the transaction even does occur.
SVB shares sank 42% to $61.22 at 6:06 a.m. in early trading in New York. In the US, the KBW Bank Index on Thursday had its worst day since June 2020, as its members shed more than $90 billion of value. In Europe, the biggest banks lost more than $40 billion from their market caps on Friday.
Behind the scenes, Silicon Valley Bank executives have rushed to reassure clients even as prominent venture capitalists advised their portfolio businesses to withdraw money. Some customers complained they were unable to make withdrawals on Thursday.
Read More: SVB Races to Prevent Bank Run as Funds Advise Pulling Cash
“There is clearly one set of reactions which is let’s move our money and, to be clear, the reason for that is why wouldn’t you looking at a cost-benefit analysis why would you not look to de-risk exposure,” Eileen Burbidge, a partner at Passion Capital Investments, said in an interview with Bloomberg Television. “On the other hand, there’s probably just as many people saying ‘Listen, this is overblown.’”
One of those is Upfront Ventures partner Mark Suster, who said his firm continues to bank with SVB and urged the VC world to help stem the panic.
“The venture capital community needs to come together cohesively and put out a statement in support of SVB,” he said in an interview with Bloomberg Television. “It’s only fear that will drive a massive problem for all of us and none of us will benefit from that.”
SVB’s share moves this week are a stark turnaround for a bank that rose to prominence by banking burgeoning startups and venture capitalists alike. At the end of last year, the Santa Clara, California-based lender was the country’s 16th largest bank.
The company has long said it does business with nearly half of all US venture capital-backed startups. But the Federal Reserve’s aggressive push to raise interest rates has dampened venture funding and hindered valuations.
Still as recently as January, Chief Financial Officer Daniel Beck told investors there wasn’t “any desire for a wholesale change in the available-for-sale portfolio,” while noting the company was open to small sales.
“They’ve done a number of investor conferences in the past few months and they would give an indication that anything they would do is small,” Tim Coffey, an analyst at Janney Montgomery Scott, said in an interview. “And what they did is not small.”
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