SVB Financial Group’s Capital Raise Sends Shockwaves Through Venture Capital Industry

SVB Financial Group, the holding company for Silicon Valley Bank, saw its shares plummet by 60% after it launched a $1.75bn share sale in a bid to shore up its balance sheet. The capital raise came after the bank said it needed to plug a $1.8bn hole created by the sale of a $21bn loss-making bond portfolio mostly made up of US Treasuries yielding an average 1.79% return, far below the 10-year Treasury yield of 3.9%. SVB is the banking partner for almost half of US venture-backed tech and healthcare companies that listed on the stock markets in 2022.

The development sparked broader fears over the sector, causing investors to question the risks it posed. The move caused more than $80bn in value to be wiped from bank shares, with SVB’s CEO Gregory Becker calling clients to reassure them that their money was safe. Some startups advised their founders to pull their money from the bank, and sources said that Founders Fund, a company owned by Peter Thiel, was among those who did so.

SVB reportedly told four clients that transfers could be delayed. However, despite the concerns, the bank’s bonds were not performing as poorly as its equity, according to Natalie Trevithick, head of investment-grade credit strategy at investment adviser Payden & Rygel. She added that she did not expect the bank to properly recover in the near term.

Meanwhile, the bank’s $500m private equity deal with General Atlantic is expected to go ahead. The funds raised from the stock sale are set to be reinvested in shorter-term debt, while the bank plans to double its term borrowing to $30bn. The bank also forecast a “mid-thirties” percentage decline in net interest income this year, a larger drop than the “high teens” it predicted seven weeks earlier.

David Chiaverini, an analyst at Wedbush Securities, said that despite the latest concerns, the bank had received significant proceeds from selling securities and raising capital. He added that he did not believe the bank was in a liquidity crisis.

The development raised investor concerns about broader risks in the sector, and First Republic, a San Francisco-based bank, saw its shares fall by more than 16.5% after hitting its lowest level since October 2020. Zion Bancorp dropped more than 12%, and the SPDR S&P regional banking ETF slid 8% after reaching its lowest point since January 2021. Major US banks, including Wells Fargo, JPMorgan, Bank of America and Citigroup, were also hit, with share prices falling between 4% and 6%.

SVB said it was taking these actions because it expected continued higher interest rates, pressured public and private markets, and elevated cash burn levels from its clients. When there was a return to balance between venture investment and cash burn, it would be well-positioned to accelerate growth and profitability, Becker said, adding that the bank was well-capitalised.

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