Shares of tech-focused bank SVB Financial plunged by more than 50% on Thursday after the company announced a plan to raise more than $2 billion in capital to help offset losses on bond sales.
Trading in the stock was halted for volatility multiple times during the session, and the drop brought SVB’s market cap below $8 billion. The decline pushed the shares to their lowest close since 2015.
The decline in SVB's stock price is a reflection of the difficult times in which the bank finds itself. The global economic downturn has put a strain on the bank's lending and has led to a decline in the bank's net income.
SVB has been hit hard by the pandemic, which has forced many of its customers to seek relief from loan payments and other forms of financial assistance. The bank has seen a sharp decline in loan origination volume, with the volume of loan originations in the first quarter of 2020 down 44% compared to the same period in 2019.
In addition to the pandemic, the bank has been hampered by its exposure to the volatile tech sector. SVB has been a major lender to tech companies, and its loan portfolio is heavily concentrated in the technology industry. As a result, any disruption in the tech sector can have a significant impact on the bank's financial performance.
SVB has taken steps to mitigate the impact of the pandemic, including cutting costs and increasing capital reserves. However, the bank's efforts have been insufficient to offset the losses it has incurred. As a result, the bank announced its plan to raise $2.3 billion in new capital to help cover losses from bond sales and to strengthen its balance sheet.
The announcement sent shockwaves through the financial markets, as investors feared that the bank may not be able to cover its losses and could be forced to seek a capital injection from the government or other sources.
It remains to be seen how the bank will fare in the coming months, but it is clear that the stock market is not confident in the bank's ability to weather the storm. The share price will likely remain volatile in the near-term, as investors weigh the risk of further losses against the potential for a turnaround.
In the long run, the bank's future will depend on its ability to manage its loan portfolio and to find new sources of income. If SVB can successfully navigate the current economic environment, it may be able to emerge from the crisis stronger than before.
