Silicon Valley Bank (SVB) parent SVB Financial saw their stock price plummet 60% on Thursday after they completed a $21 billion firesale of their bond portfolio, resulting in a loss of $1.8 billion.[0] This caused them to announce plans to raise about $2 billion from investors by selling stock and issuing related securities, leading to some VCs and founders to worry about the financial strength of their banking institution.
S&P lowered their rating on SVB to BBB- from BBB, leaving it just one notch above their junk rating.[1] Meanwhile, Moody’s reduced SVB to Baa1 from A3, reflecting “the deterioration in the bank’s funding, liquidity and profitability, which prompted SVB to announce actions to restructure its balance sheet.”[2] The yield on the 10-year Treasury dropped 5 basis points to 3.92%.[3]
On Thursday, Becker reportedly encouraged the venture capital community to “remain composed,” according to The Information.[4] People familiar with the situation have reported that Founders Fund, the venture capital fund co-founded by Peter Thiel, has recommended that companies withdraw their funds from Silicon Valley Bank due to worries regarding its financial stability.[5] SVB noted that client cash burn is still approximately twice as high as it was prior to 2021, and that it has not been adapted to the current slower rate of fundraising. This appears to show that startups have not modified their previous spending habits.[2]
Due to the decrease in revenue from the securities sales, SVB will obtain $2.25 billion of new capital through two offerings and a private placement. Share prices dropped dramatically at the thought of shareholders’ ownership stakes being diluted.[6] This includes $1.25 billion of common stock, a $500 million private placement from the private equity firm General Atlantic, and $500 million of mandatory convertible preferred stock.[7]
Investing in SVB is seen as investing in the startup environment and technological advancement.[8] Those who are confident that the next decade will bring positive change can look towards investing in public and private financial markets, which have seen an improvement thanks to the bank.[8]
0. “Bank Stocks Sink Most in Nearly Three Years as Sentiment Sours” Yahoo Finance, 9 Mar. 2023, https://finance.yahoo.com/news/bank-stocks-sink-most-nearly-192343797.html
1. “SVB Financial sells securities at a $1.8B loss, launches capital raise” American Banker, 9 Mar. 2023, https://www.americanbanker.com/news/svb-financial-sells-securities-at-a-1-8b-loss-launches-capital-raise
2. “SVB stock price crashes 59% after bond firesale spurs losses” Markets Insider, 9 Mar. 2023, https://markets.businessinsider.com/news/stocks/silicon-valley-bank-svb-stock-price-bond-portfolio-firesale-treasury-2023-3
3. “US Stock Futures Slip Ahead of Key Jobs Data: Markets Wrap” Yahoo News, 9 Mar. 2023, https://news.yahoo.com/asian-stocks-set-rise-choppy-223319818.html
4. “Silicon Valley Bank CEO Tells VC Clients to ‘Stay Calm’” The Information, 9 Mar. 2023, https://www.theinformation.com/articles/silicon-valley-bank-ceo-tells-vc-clients-to-stay-calm
5. “SVB Financial CEO Asks Silicon Valley Bank Clients to ‘Stay Calm’ as Shares Sink” Yahoo Finance, 9 Mar. 2023, https://finance.yahoo.com/news/svb-financial-ceo-asks-silicon-205352312.html
6. “Bank carnage drags stocks lower as SVB Financial shares plunge” MarketWatch, 9 Mar. 2023, https://www.marketwatch.com/story/bank-carnage-drags-stocks-lower-as-svb-financial-shares-plunge-d3503ab6
7. “Why Shares of SVB Financial Crashed Today” The Motley Fool, 9 Mar. 2023, https://www.fool.com/investing/2023/03/09/why-shares-of-svb-financial-crashed-today/
8. “SVB Financial Stock: Well Positioned Long-Term (NASDAQ:SIVB)” Seeking Alpha, 9 Mar. 2023, https://seekingalpha.com/article/4585904-svb-financial-selloff-overdone-well-positioned-long-term