Silicon Valley Bank has launched a $2.25bn share sale after suffering a large loss on its portfolio of US Treasuries and mortgage-backed securities, as the technology-focused lender grapples with rising interest rates and a cash crunch at many of the US start-ups it helped finance.
California-based SVB said on Wednesday that it planned to offer $1.25bn of its common stock to investors and a further $500mn of mandatory convertible preferred shares, which are slightly less dilutive to existing shareholders. Private equity firm General Atlantic has also agreed to buy $500mn of the bank’s common stock in a separate private transaction.
The share sales would help shore up the bank’s capital base after losing roughly $1.8bn on the sale of around $21bn of its securities that were classified as being available for sale, according to its statement on Wednesday.
As of the end of 2022, the bank had $26.1bn in available-for-sale securities. The bulk of that was in US Treasuries but it also included foreign government debt and mortgage-backed securities. It additionally holds around $91bn of securities in a held-to-maturity portfolio.
SVB shares were down around 15 per cent in after-hours trading in New York.
The bank’s niche of serving venture capital-backed US tech and life sciences companies has helped it enjoy massive growth in recent years as money poured into Silicon Valley start-ups in an era of low interest rates.
SVB’s share price had more than doubled from 2018 to the end of 2021, and its market capitalisation hit a peak of more than $44bn.
However, the bank is now suffering from a slowdown in VC funding, a cash burn at many of its clients and losses on investments it made when rates were at rock-bottom levels.
During the recent tech boom years, SVB’s deposits swelled as it took on cash from start-ups flush with VC funding. SVB ploughed much of these deposits into long-dated securities like US Treasuries, which are deemed safe but are now worth less than when the bank purchased them because the Federal Reserve has increased rates.
New York-based General Atlantic is active in making large minority equity investments in public and private companies using its growth capital funds. It has been a client of the bank for over a decade, according to a source familiar with the matter. It also has a history of investing in banks, having been an early backer of First Republic.
Goldman Sachs and SVB Securities are acting as book-running managers for the share sales.
Additional reporting by Sujeet Indap and Tabby Kinder