The $97 billion asset Silicon Valley Bank (SIVB.Q 20.00%) has managed to pull off a feat that few bank stocks have managed to achieve during the coronavirus pandemic: It saw its stock soar to an all-time high. That's quite an accomplishment when you look at the beaten-down banking sector. As of this writing, the stock traded at more than $357 per share.
Silicon Valley Bank, which caters heavily to the start-up, venture capital, and private equity communities, has been one of the top-performing bank stocks since the Great Recession when you look at growth. Let's look at how much money you would have made on the stock had you invested $1,000 in its IPO.
Image source: Silicon Valley Bank.
A story that keeps getting better
Founded in 1983 over a poker game, Silicon Valley Bank was born to provide financing to the riskier venture-backed start-up asset class often overlooked by traditional financial services. While the exact date of the bank's IPO is a little tough to pin down, we know that the bank began trading on the NASDAQ around late 1987 and early 1988 . According to Google Finance, going all the way back to the beginning, the split-adjusted share price was as little as $0.68 per share in October 1987. So, if you put in $1,000 back then, you would have about 1,471 shares now.
Following its IPO, the bank grew steadily over the next 20 years, increasing its share price all the way to $66 toward the end of 2008 right around the Great Recession. Then, like most bank stocks, Silicon Valley took a huge hit as one of the worst financial crises ever hammered the banking sector. Still, the bank fared OK during the Great Recession, with net charge-offs (debt unlikely to be collected) getting as high as 2.64% of total loans in 2009 , but then dropping sharply. Being able to survive and operate from a position of strength in multiple credit cycles is what separates the strong banks from the poorly performing ones.
While it hurt the bank initially, the Great Recession actually proved to be a blessing in disguise for Silicon Valley Bank. The venture capital and research firm Pitchbook estimates that new company formation in the U.S. more than doubled between 2008 and 2012 . This is Silicon Valley Bank's bread and butter, because the bank provides loans to the venture capital and private equity companies funding these start-ups, finds various ways to invest in some of these start-ups, and provides banking services to these start-ups, which can grow into massive companies and churn out lots of high-net-worth individuals.
Silicon Valley Bank's stock price has soared over the last decade. In 2018, it got as high as $326 per share before dipping in 2019 and at the start of the pandemic. However, since the market's low point of the pandemic in March, Silicon Valley Bank has seen its stock grow by more than $200. The pandemic has accelerated the pace of digital adoption and also positioned the economy for another surge in entrepreneurship. This year, Silicon Valley Bank has helped underwrite a number of tech IPOs. Plus, venture capitalists now have record levels of dry powder, which as I mentioned also helps the bank. As of this writing, the stock at one point topped $357 per share.
Not too shabby
So, how much money would you have made if you had invested $1,000 in Silicon Valley Bank's IPO when shares started trading at $0.68 per share? At $357 per share, those 1,471 shares would be worth a bit over $525,000. If you had been so bold as to invest $2,000 in 1987, you would be a millionaire.
Let's quickly compare this to the growth of the S&P 500 Index over the same time period. In recent days, the S&P 500 hit 3,628. On Oct. 23, 1987, around the time Silicon Valley Bank went public, the S&P 500 closed around 250. That's a cumulative return of 1,350%, and although that doesn't include dividends from the index, it still shows that Silicon Valley Bank has performed far better over the long run.
