Is Crypto Contagion Spilling into Traditional Finance? Silicon Valley Bank Shares Crater, Looks to Raise Capital [u]

Yesterday, CI received multiple texts from Fintech insiders that expressed their worries about Silicon Valley Bank (NASDAQ:SIVB), a bank favored by startups. Shares in the bank tanked by over 60% yesterday as investors rushed for the exit.

The cause of concern was the announcement by the bank that it intends to offer $1.25 billion of its common stock and $500 million of depositary shares in separate underwritten registered public offerings.

At the same time, SVB said it had entered into a subscription agreement with General Atlantic to purchase $500 million of common stock at the public offering price in the offering of common stock in a separate private transaction.

SVB also revealed that it had sold substantially all of its securities portfolio, adding cash to its balance sheet in the amount of $21 billion while booking an after-tax loss of approximately $1.8 billion.

SVB has moved to shore up its balance sheet by raising capital, raising more questions than answers.

In brief, SVB is experiencing a Silvergate moment.

This past week, Silvergate announced its decision to wind down operations due to the collapse of crypto markets. While crypto is a catalyst to the bank’s demise, it really scraped off the veneer off the fractional banking system as Silvergate did not hold sufficient cash to cover deposits, and its securities held had dropped in value – due to the rising interest rate environment.  For bonds, there is an inverse relationship with interest rates. As rates rise, prices go down for these securities to match the market. The Fed has been raising rates at an unprecedented pace, pushing bond prices down. So who else is having a similar problem?

In a letter to shareholders, SVB CEO Greg Becker explained:

“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. We are experienced at navigating market cycles and are well positioned to serve our clients through market volatility, with a high-quality, liquid balance sheet and strong capital ratios.”

SVB claimed that it has “ample liquidity and flexibility” with “one of the lowest loan-to-deposit relations” for a bank of its size.

Becker sought to assure investors that they have charted the right strategy during a difficult time.

While Becker may be certain all is well, markets have reacted differently, as shares in SVB cratered, and other bank stocks sank in empathy to SVB’s situation.

This morning, trading in SVB shares has been halted, with some expecting a sale of the bank as other options are being reviewed to steady the ship. Any decision by the bank will be coordinated with banking regulators.

UPDATE: Silicon Valley Bank will wind down operations, according to FDIC.

Sponsored Links by DQ Promote



Send this to a friend