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Silicon Valley Bank operating as SVB Financial Group is seeing the worst of its days with its share price plunging by 23.52% in the Pre-Market, following a massive slump of 60.41% on Thursday.
Considering the massive selloff in the bank’s stock, SVB Financial Group (NASDAQ: SIVB) is now changing hands at $81.10 in what is regarded as the worst week for the firm in about a decade. The strain in the company’s stock stems from its latest fundraising through $1.75 billion in share sales. The company launched the raise this week and said it plans to use the funds to cushion the $1.8 billion hole caused by the sale of a $21 billion loss-making bond portfolio consisting primarily of US Treasuries per a Reuters report.
While the firm had good plans for the raise, the move unsettled investors who believe the firm might still be unable to meet the shortfall in its bond. With the selloffs, the company’s Chief Executive Officer, Gregory Becker has been calling the company’s venture capital investors to reassure them that their deposits are safe with the back. Two people familiar with the development spoke on condition of anonymity.
SVB is the banking partner of choice for Silicon Valley startups. The bank ranked as the top lender to about 50% of startups that went public last year. Investors are still concerned that the devaluation of these companies’ backs might be unsustainable in the mid to long term per realities in the current economic outlook.
With the selloff being experienced, investors have reportedly started pulling out their funds from Silicon Valley Bank with sources confirming the move. Bank runs can degenerate into insolvency and this can spell extra doom for investors.
Not All Is Bad for Silicon Valley Bank
The Fear, Uncertainty, and Doubt (FUD) surrounding Silicon Valley Bank at this time might be bad press, but not all is bad for the financial services firm at this time. With Wedbush Securities analyst David Chiaverini saying he does not believe SVB is in a liquidity crisis, the bank’s CEO is already affirming strategies to balance out its books.
One of the measures is to double its term borrowing to $30 billion while also reinvesting its short-term debt.
“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,” Becker said in the letter.
“When we see a return to balance between venture investment and cash burn – we will be well positioned to accelerate growth and profitability,” he said, noting SVB is “well capitalized.”
The same challenges SVB is experiencing is one of the issues that has made top crypto bank, Silvergate Capital Corp announce a voluntary fold-up of its business followed by a liquidation of its assets.