By Investing.com Staff
Bank stocks cratered on Thursday as SVB Financial Group (NASDAQ:SIVB) aggressive measures to shore up its balance sheet sent shockwaves across the sector.
SVB, aka Silicon Valley Bank, plunged 47% Thursday after announcing a multi-billion dollar equity offering and a transaction to sell tens of billions of dollars worth of securities at a loss.
The news sent the regional bank ETF, SPDR® S&P Regional Banking ETF (NYSE:KRE), down nearly 7%.
Late Wednesday, SVB said it will embark on a $1.75B share sale, made up of $1.25B of its common stock and $500 million of depositary shares. Further, it entered into a subscription agreement with General Atlantic to purchase $500M of common stock at the public offering price in the offering of common stock in a separate private transaction. This brings the total equity to be raised to $2.25B.
In addition, SVB announced that it recently completed the sale of its available securities portfolio. SVB sold approximately $21B of securities, resulting in an after-tax loss of about $1.8B in the first quarter of 2023.
Morgan Stanley analysts said lower 2023 NII guidance at SVB is driven by cash burn among private companies that bank with SVB. This, according to the analysts, will cause SIVB to bring more higher-cost sweep accounts onto its balance sheet, paying roughly the Fed funds rate to do so.
"Higher-for-longer rates also mean that these sweep accounts will be a bigger drag on NIM," the analysts commented. "Additionally, the $15 bil increase in long-term debt will also push funding costs higher." The ongoing pressure on venture capital deployment and cash burn keeps the firm Underweight the stock.
"The Silicon Valley raise got everybody nervous about people's capital levels and what deposits are doing. A lot of institutional investors don't feel great about owning certain banks right now," Keefe, Bruyette & Woods told Reuters.
"It just gets people freaked out because Silicon Valley, historically has been a very strong, well-run bank," the analysts added. "If they're having issues right now, people are wondering what about other banks that are lesser quality and that don't have the reputation that Silicon Valley Bank has."
SVB's woes eclipsed news that another California-based bank announced plans to liquidate its banking assets amid its crypto issues. Silvergate Capital (NYSE:SI) announced late Wednesday that it will wind down Bank operations and voluntarily liquidate the Bank. Silvergate bet heavily on cryptocurrencies and had deep ties with disgraced crypto exchange FTX.
The SVB news hit Beverly Hills, CA-based PacWest Bancorp (NASDAQ:PACW) particularly hard. Shares fell 20% Thursday, although analysts at Keefe, Bruyette & Woods said the company has a "lower concentration and maturity of venture deposits."
Elsewhere, The Charles Schwab Corporation (NYSE:SCHW) fell 9.3%. The downside in Charles Schwab was triggered by the sale of a large block of 8.5M shares this morning, but some investors brought up the broker's own exposure to sweep accounts.