Silicon Valley Bank parent’s stock plunges as it sells assets and start-up clients face cash crunch

SVB Financial Group took steps to shore up capital after being hit by losses on its securities portfolio and a slowdown in funding at the venture capital-backed firms it banks. The company’s shares plunged by the most on record.

The slump in the stock, its worst in more than 35 years, came after Santa Clara, California-based SVB announced a stock offering, sold substantially all of the available-for-sale securities in its portfolio and updated its forecast for the year to include a sharper decline in net interest income.

“We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash-burn levels from our clients as they invest in their businesses,” SVB chief executive officer Greg Becker said in a letter to shareholders Wednesday.

The company – the parent of Silicon Valley Bank – declined to comment beyond the letter. SVB’s shares sank 60 per cent on Thursday, closing at their lowest level since September 2016, erasing US$9.6 billion in market value.

With the floundering of prominent start-ups – including crypto exchange FTX, which ultimately went bankrupt – venture investors have been reckoning with the repercussions of years of exuberant investment in emerging companies and their founders. Firms have slowed their pace of investing, offering stingier terms to founders while demanding greater transparency and rigour during due diligence to try to avoid additional fallout.

The bank’s troubles echo some of the issues that ended up sinking Silvergate Capital Corp, another California lender that targeted a specific market. In Silvergate’s case, it was cryptocurrency firms. The volatility of crypto-related deposits combined with losses the bank sustained on its securities portfolio led Silvergate to wind down operations and liquidate its bank.

SVB has far greater strength and staying power in its franchise, analysts said.

Silvergate and SVB “in fact are victims of the same phenomenon as Fed tightening extinguishes froth from those parts of the economy with the most excess – and it’s hard to find more excess than in crypto and tech start-ups,” said Adam Crisafulli of Vital Knowledge.