"Don't look now, but there's something funny going on over there at the bank, George."*
From ZeroHedge, March 9:
Update (1500ET): As the day wore on and SIVB shares collapsed (and fear spread contagiously across other banks and asset-classes), The Information reports that Silicon Valley Bank CEO Greg Becker on Thursday told top venture capitalists in Silicon Valley to “stay calm” amid concerns around a capital crunch that wiped nearly $10 billion off the bank’s market valuation.
“I would ask everyone to stay calm and to support us just like we supported you during the challenging times,” he said.
On a call, Becker said that “calls started coming and started panic.”
He added that the bank has “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble that would be a challenge.”
Haven't we heard that kind of reassurance before?
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Is the bursting of the tech bubble finally spilling over to the financial system?
One day after the biggest crypto-focused bank, Silvergate Capital, announced plans to unwind and liquidate after a deposit run effectively killed its core business model, this morning its far larger peer - the parent company of the venerable Silicon Valley Bank, SVB Financial Group - saw its shares plunge the most in more than two decades after the company took "steps to bolster its financial position" that included not only a highly dilutive stock offering but also a panicked asset sale that sparked fears of a liquidity crisis at one of the biggest and original providers of funding to the Venture Capital industry.
The Santa Clara-based company’s shares sank by as much as 60% on Thursday, their biggest decline in the company's history since going public in 1987.
The slump in the shares to their lowest level since May 2020, came after SVB i) announced a stock offering, ii) sold substantially all of the available-for-sale securities in its portfolio and iii) updated its forecast for the year to include a sharper decline in net interest income....
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.....Multiple analysts have pointed to the high deposit outflows as the catalyst for the liquidity sale, which stoked fears for the banking industry as a whole.
Truist analyst Brandon King says “the increase in balance sheet asset sensitivity should lower the left tail risk to higher interest rates” but expects material value per share dilution from the proposed capital raise.”
“The proceeds from the sale are expected to be reinvested into short duration US treasuries along and hedged with receive floating swaps”
KBW analyst Christopher McGratty says SVB Financial will exit 2023 on a notable lower earnings run rate due (NII and share count), and “it’s possible that 2024E is in the $16.00-$18.00/share range” pending the price of the capital raise
SVB Financial sold $21B of securities to better manage liquidity, in light of accelerated deposit outflows
For the broader sector, “balance sheet management for the group is unquestionably front and center” and it’s possible that banks with “more volatile/flightly deposits” could trade lower on this news. Namely, SBNY and PACW
Evercore ISI analyst John Pancari:
“We favor SIVB’s strategy to shore up liquidity and reposition the balance sheet for increased asset sensitivity, particularly in lieu of the Fed’s more hawkish recent tone”
Management’s updated outlook reveals incrementally weaker deposit dynamics – an output of more resilient than expected client cash burn trends, and the likely catalyst of the move
Jefferies analyst Casey Haire says the balance sheet restructuring and capital raise will boost net interest income and nudge capital ratios higher...
...but also reveal that SVB Financial’s ecosystem is still challenged due to higher for longer interest rates and a surprise pick-up in client cash burn
Also notes the updated 2023 guidance that implies EPS of ~$15 against consensus of $19
Bloomberg Intelligence analyst Herman Chan notes the sale “comes as a surprise considering the bank’s ability to source off-balance-sheet client funds for deposit funding”
To ease the hit, SVB will raise $2.25 billion through common stock, depositary shares and a sale of shares to General Atlantic
In an earlier note, Chan notes that “SVB is sitting on a $15 billion unrealized loss position in its $91 billion held-to-maturity securities portfolio”....
