Silicon Valley Bank Unable to Find Buyer as Bank Run Outspaces Sale Process
SVB Financial, the parent of Silicon Valley Bank, failed to find a buyer prior to a bank run that made regulators shut it down.
Sources told CNBC’s David Faber that deposit outflows were exceeding the selling process, making it very challenging for potential purchasers to make an accurate appraisal of the bank.
Once the bank’s attempts to acquire money failed, SVB sought to find a buyer and hired experts to help it, according to the sources who spoke with Faber.
Following SVB’s announcement of an intention to raise more than $2 billion in capital on Wednesday evening, the bank’s shares dropped 60% on Thursday. Before being halted, premarket trading on Friday saw a further 60% decline in the shares. The shares didn’t resume trading on Friday.
SVB intended to sell $1.25 billion in common stock and an additional $500 million in convertible preference shares under the parameters of a deal disclosed on Wednesday.
According to a securities filing, SVB also disclosed an agreement with investment firm General Atlantic to sell $500 million of common stock, however, that arrangement was contingent on the closure of the other common stock sale.
SVB, a major bank for venture-backed businesses, stated that one of the reasons it was seeking new funding was customer cash burn.
However, it has become increasingly challenging for early-stage enterprises to secure more capital due to rising interest rates, recessionary fears, and a downturn in the market for initial public offerings. This has reportedly caused businesses to withdraw money from their bank deposits at institutions like SVB.
Wall Street analysts stated on Thursday and Friday that it appeared unlikely that the issues at SVB would affect the entire banking industry. In a note to clients, Morgan Stanley referred to SVB’s problems as being “highly idiosyncratic.”
SVB disclosed the sale of $21 billion in securities on Wednesday in order to raise cash and realign its balance sheet toward assets with a shorter tenure that are less susceptible to rising interest rates. SVB calculated that it lost $1.8 billion on that transaction.