Analysts downgrade SVB Financial as uncertainty around tech-focused bank looms

Published Fri, Mar 10 20237:53 AM ESTUpdated Fri, Mar 10 202311:22 AM EST

Several Wall Street research firms downgraded SVB Financial after shares of the tech-focused bank plunged more than 60% during the previous trading session. Shares are down about 63% in midmorning trading Friday. Confidence around the stock dropped after SVB Financial, known as Silicon Valley Bank, announced a plan to raise more than $2 billion in capital to help offset losses on bond sales. On Wednesday, CEO Greg Becker said in a letter that SVB Financial has sold "substantially all" of its available-for-sale securities and was looking to raise $2.25 billion between common equity and convertible preferred shares. The sale of securities will result in a post-tax earnings loss of $1.8 billion, SVB's letter said, but the company added that its plan to reinvest the proceeds should be "immediately accretive" as the bank reshapes its balance sheet. Truist analyst Brandon King downgraded the stock to hold from buy. King also lowered his price target to $100 from $174, which implies a 6% decline from Thursday's closing price. However, shares were already down to $39.40 as of Friday at 11:20 a.m. ET. SIVB 1D mountain SIVB falls "With the increasing risk of accelerated deposit outflows ... we believe there is too much uncertainty to recommend the stock to investors," King wrote in a Thursday note. "The stock reaction today is evident of concerns around the bank's liquidity and the potential for [held-to-maturity] securities sales, which could severely impair tangible capital and profitability. Given these risks, we suggest that investors wait on the sidelines until there is more clarity on deposit outflows and the proposed capital raise of $2.25 billion," King added. Wolfe's Bill Carcache downgraded the stock to peer perform from outperform on persistent elevated cash burn rates, citing his lack of confidence in the company's guidance. Wolfe set a fair value range of $60 to $121 for SVB shares in lieu of setting price targets on peer perform-rated stocks. "What had been a P & L problem morphed into a capital concern. With so much liquidity at its disposal, many investors were surprised that SIVB elected to sell its AFS securities portfolio, which created a $1.8bn hole in regulatory capital," Carcache wrote. The analyst expressed concern that the proposed capital raise would potentially be followed by more in the future. Raymond James is another firm that downgraded shares. Analyst David Long lowered his rating to market perform from outperform. Long also removed his price target, which was previously $375. "Accelerating deposit costs and moving of off-balance sheet deposits onto its balance sheet at elevated yields will continue to pressure SVB's NIM and overall profitability," Long wrote. "With more than 90% of its HTM portfolio tied to mortgage backed securities (MBS), the portfolio is subject to continued duration risk as rates rise. To sum, we envision a need for another large-scale sale of securities from its HTM portfolio, if rates move materially higher than the current forward curve implies," Long added. Evercore suspended its rating, target price and earnings estimates altogether. It had previously issued an outperform rating and price target of $360 per share. Not everyone was as downbeat on SVB. JPMorgan maintained its overweight rating on the stock while slashing its target more than 50% to $177. "While we fully acknowledge that we did not see these aggressive actions coming to boost liquidity (as well as common raise), given that the cash burn from startup clients as well as pace of investments by VC firms each remain moving targets, on an overall basis we see this as a very prudent strategy from the company," analyst Steven Alexopoulos wrote in a Friday note. "Although the realization of unrealized losses on securities would bolster the bear case on the stock, for the investors that are able to go against the herd and buy at a point of maximum pessimism (which a 0.5x P/TBV multiple implies to us), we believe patient longs should be handsomely rewarded," Alexopoulos said. — CNBC's Michael Bloom contributed to this report.