- Silicon Valley Bank lost big on sale of bond portfolio.
- After announced $2.25 billion raise, ventures firms abandon ship.
- SIVB stock sells off 45% in Friday premarket.
- SVB Financial stock lost 60% on Thursday.
SVB Financial Group (SIVB), the parent of Silicon Valley Bank, saw its stock drop another 45% in Friday's premarket after losing more than 60% on Thursday. Prominent venture capital funds have told their portfolio companies to transfer their deposits to other banks due to possible insolvency risk. The bank run at one of the US's largest financial institutions began mid-week when management announced it was raising $2.25 billion to shore up its capital position after selling a large bond portfolio at a loss. Shares are down some 45% at the time of writing below $58.
SVB Financial stock news: Adventures in the venture-led bank run
It all started when SVB Financial Group sold off an enormous bond portfolio at a loss. The bank sold off some $21 billion worth of corporate bonds, mortgage-backed securities and US Treasuries, taking a $1.8 billion loss in the process. The portfolio had been losing value over the past year as interest rates soared, making these lower interest assets less valuable. To plug this $1.8 billion hole, Silicon Valley Bank announced a plan to raise $2.25 billion. First, it would raise $1.25 billion in new common equity. Then another $500 million each would come from private equity firm General Atlantic and convertible preferred shares.
A number of high-profile venture capital firms then took that announcement and ran with it. Peter Thiel's Founders Fund told its portfolio of startups to move their cash. Rumors emerged that many startups were withdrawing cash and placing it with First Republic Bank. Coatue Management, Union Square Ventures and Founder Collective all directed their startup partners to do the same. This venture-led bank run might have spillover effects though. Silicon Valley Bank holds equity stakes in many prominent startups in the Valley. If it is forced to dump them in unison, this firesale could blow back on these same venture funds by reducing lower valuations for their portfolio companies and thus returns to their venture funds.
SVB Financial CEO Greg Becker assured investors on Thursday that Silicon Valley Bank had enough reserves and was not in danger of collapse, but this did not assure the market. In fact, the contagion spread to the largest banks in the US with investors worrying that Silicon Valley Bank's bond portfolio situation was likely to be mirrored throughout money center banks. Citi (C), Wells Fargo (WFC), JPMorgan (JPM) and Bank of America (BAC) all lost between 4% and 7% in Thursday's session.
The events also had major Wall Street icons like Bill Ackman calling for a government bailout:
The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.
— Bill Ackman (@BillAckman) March 10, 2023
SVB Financial stock forecast
SVB Financial stock needs to hold onto $80 in the premarket to have any chance at forming a new base. That level was respected during a pullback in 2016. With the stock falling below $60 though in the premarket, $53 might be a better bet. That is where SIVB found support back in 2011. When you begin looking to the monthly chart, however, it is typically a bad sign. I would not venture to catch this falling knife, but Silicon Valley Bank has a respected brand. It would not be too surprising to see a savior emerge from backstage, be it Joe Biden or Warren Buffett.
SIVB monthly chart
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