SVB Financial’s stock suffers biggest drop in 25 years after large losses on securities sales, equity offering

SVB also cut its first-quarter guidance ranges for net interest income (NII) to $880 million-$900 million from $925 million-$955 million and for net interest margin (NIM) to 1.75%-1.79% from 1.85%-1.95%. The outlook for declines in average deposits was increased to the low-double-digit percentage range from mid single digits.

“While VC deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted,” Chief Executive Greg Becker wrote in a letter to shareholders. “The related shift in our funding mix to more, higher-cost deposits and short-term borrowings, coupled with higher interest rates, continues to pressure NII and NIM.”

The stock dove 41% in morning trading, outpacing the S&P 500’s
SPX,
-0.22%
losers by a wide margin. It was suffering the biggest one-day selloff since its record 42.3% decline on Sept. 10, 1998.

SVB said late Wednesday it sold about $21 billion worth of its available-for-sale securities. As of Dec. 31, the company had $26.1 billion in AFS securities.

The sale will result in a loss of about $1.8 billion in the first quarter of 2023, while the FactSet consensus for first-quarter net income was $274.8 million.

“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,” Becker wrote.

Separately, the company said it plans to offer for sale $2.25 billion worth of equity securities to bolster its financial position.

The offering includes $1.25 billion worth of common stock, which represents 13.4% of the company’s current market capitalization of $9.33 billion, and $500 million worth of mandatory convertible preferred stock. SVB has also entered into an agreement with private-equity investor General Atlantic to buy $500 million worth of common stock in a separate private transaction.

“Our financial position enables us to take these strategic actions, which are intended to further bolster that position now and over the long term,” the bank said in a statement.

JPMorgan analyst Steven Alexopoulos cut his stock-price target to $270 from $300 but reiterated the overweight rating he’s had on SVB for at least the past three years. The stock target is above Tuesday’s closing price of $267.83.

“While this is yet another setback that will result in another negative [earnings-per-share] revision, we continue to believe that it remains a question of when rather than if the war chest of dry powder on the sidelines starts to get deployed at a much more rapid pace,” Alexopoulos wrote in a note to clients.

The stock, which was headed for its lowest close since April 2020, has tumbled 28.3% over the past three months and plunged 70.7% over the past 12 months. In comparison, the Financial Select Sector SPDR exchange-traded fund
XLF,
-2.75%
has lost 7.1% over the past year and the S&P 500 has shed 6.6%.