Shares of tech-focused bank SVB Financial plunged by 60% 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 for volatility multiple times during the session, and the drop brought SVB’s market cap below $7 billion.
The company said in a letter from CEO Greg Becker on Wednesday that it has sold “substantially all” of its available-for-sale securities and was looking to raise $2.25 billion between common equity and convertible preferred shares.
Investment fund General Atlantic has already committed to contribute $500 million of that total, the letter said.
The sale of securities will result in a post-tax earnings loss of $1.8 billion, SVB’s letter said, but the company added that its plan to reinvest the proceeds should be “immediately accretive” as the bank reshapes its balance sheet.
The company said in a presentation that it sold off $21 billion in available-for-sale securities. The available-for-sale securities at the end of the fourth quarter were mostly U.S. Treasurys, according to a securities filing. The company also previously reported more than $90 billion in held-to-maturity securities.
The Federal Reserve has aggressively hiked interest rates over the past year, which can cause the value of bonds to fall – particularly those that have many years to maturity. SVB said it is reinvesting the proceeds from its sales into shorter-term assets.
The bank cited higher interest rates and “elevated cash burn from our clients” as reasons to raise the new capital. The firm is heavily involved with startup companies, saying on its website that nearly half of all venture-backed tech and life science firms in the U.S. bank with SVB.
Wells Fargo bank analyst Mike Mayo said in a note to clients that SVB’s issues appeared to be caused by “a lack of funding diversification.” Higher interest rates, fears of a recession and a tepid market for initial public offerings have made it harder for startups to raise additional capital.
The dramatic decline for SVB comes shortly after cryptocurrency-focused bank Silvergate announced liquidation plans. SVB said in its letter that it has minimal exposure to crypto.Source: CNBC