https://www.barrons.com/articles/svb-financial-stock-portfolio-outlook-loss-93287f3d
Lender SVB Financial Group’s stock plummeted Thursday as it sold securities to realign its portfolio in response to higher interest rates while it manages lower deposit levels from clients who continue to spend cash.
The stock (ticker: SIVB ) fell 41.9% to $155.72 by late morning on Thursday. The decline, the steepest among companies in the S&P 500 , put the shares on pace for their largest percentage decrease since Sept. 10, 1998, when they fell 42.3%,
Analysts shared Neutral ratings on the stock.
On Wednesday after the market closed, SVB said it sold all of its $21 billion in securities classified as available for sale, a portfolio essentially comprised of U.S. Treasury and mortgage-backed securities. It said it suffered an after-tax loss of $1.8 billion, to be recorded in the first quarter of 2023, as a result. Prices of fixed-income securities such as MBS and Treasury debt fall as interest rates go up.
The company plans to reinvest the proceeds from the sale into shorter-term debt to take advantage of rising rates.
“The sale of substantially all of our AFS securities will enable us to increase our asset sensitivity, partially lock in funding costs, better insulate net interest income (NII) and net interest margin (NIM) from the impact of higher interest rates, and enhance profitability,” SVB said.
SVB is also raising $2.25 billion, including $500 million from private-equity firm General Atlantic and by offering $1.25 billion of convertible and common stock to investors.
SVB, parent of Silicon Valley Bank, enjoyed a bull run in 2021 as it lent to venture capitalist-backed start-ups in technology, life sciences and healthcare, and even Napa Valley wineries, in an era of low interest rates and easy money.
SVB’s stock has fallen nearly 80% from its record high in late 2021 as interest rates have increased, boosting the cost of the deposits the bank uses to fund loans. The company in its press release on Wednesday said its latest actions were partly due to expectations for a continued higher interest-rate environment and partly because deposit levels have declined.
Given the current volatile economic environment, venture-capital firms have been less willing to fund startups—a problem for SVB, which gets deposits from VC-backed start-ups that were earlier flush with cash. As of Feb. 28, SVB had client funds of $326 billion, a decline from $341 billion at the end of last year.
“What we learned over the last 12 to 24 months is that in a fast-paced rising rate environment, customer deposit dynamics are different than what we had expected,” said Chief Financial Officer Daniel Beck in a conference call with Bank of America analysts days ahead of Wednesday’s update.
“Concern over a slow-to-recover VC environment have kept us cautious on SIVB shares and potentially remains a headwind as rates stay elevated,” said D.A. Davidson analyst Gary Tenner. He rates the stock at Neutral and lowered his target for the price to $200 from $250.
Wedbush’s David Chiaverini maintained a Neutral stance as well. The analyst said his rating is based on SIVB’s growth normalizing after an exceptional run “and our belief that the VC market could remain challenged for the next couple quarters.”
SVB company said it now expects growth in loans in the high single digits for the full 2023 fiscal year, compared with the double-digit growth it had forecast earlier.
Leave a Reply