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 for funds amid increased spending.
Shares were on course for their biggest losses in 25 years as the bank said venture capital funding could remain limited in the near term, while Chief Executive Officer Greg Becker said customer spending on cash rose in February.
SVB is a critical lender to early-stage companies and is the banking partner for nearly half of US venture-backed technology and healthcare companies listed on the stock markets by 2022.
“While the spread of VC (venture capital) has followed our expectations, client liquidity burn has remained high and increased further in February, resulting in lower than expected deposits,” Becker said in a letter to investors.
Latest updates
See 2 more stories
The funding winter is a result of a relentless increase in borrowing costs by the Federal Reserve over the past year, as well as elevated inflation.
VC investors are also more hesitant to sign big checks because of a downturn in the stock market, especially in the stocks of high-flying tech companies.
In a separate deal, SVB said private equity firm General Atlantic will buy $500 million of its shares.
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 perform as badly as its equity.
“Future performance will be news dependent, 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 buy it to come back,” Trevithick said.
California-based SVB has sold $21 billion of its securities portfolio, which would result in an after-tax loss of $1.8 billion in the first quarter.
Funds raised from the sale will be reinvested 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.
“When 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 “mid-thirties” percentage drop in net interest income this year, bigger than the “high-teens” drop it 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
Our standards: Thomson Reuters Trust Principles.