The Nasdaq Composite (^IXIC -0.12%) got off to a solid start on Thursday morning, picking up about half a percent in early trading. However, it was a tough day for a pair of Nasdaq-listed bank stocks, whose shares fell sharply in part because of the announced voluntary liquidation of one of their industry peers.
Both SVB Financial (SIVB.Q -16.67%) and Signature Bank (SBNY) suffered significant declines in their share prices on Thursday. The news from Silvergate Capital likely played a role in their descent, but other factors are at play that could pose new challenges for these two bank stocks.
SVB looks to get some more cash
Shares of SVB Financial plunged 36% shortly after the opening bell on Thursday morning. The parent holding company of Silicon Valley Bank took steps to raise cash and announced that it had already taken extraordinary measures to boost its capital levels.
SVB Financial announced a $1.75 billion offering of common stock and mandatory convertible preferred shares. The financial company also said that it had entered into a subscription agreement with growth equity investment company General Atlantic to purchase an additional $500 million in common stock at the same price as the public offering. SVB Financial said that it would use the proceeds for general corporate purposes.
That news might not have prompted such a big response were it not for related disclosures that SVB Financial made at the same time. The financial company said that it had sold substantially all of its securities portfolio that it had designed as available for sale. The move raised $21 billion in proceeds, and SVB Financial took a tax loss of $1.8 billion as a result of having to sell those securities in unfavorable market conditions.
SVB Financial has exposure to many small companies at an early stage in their development, and macroeconomic pressures have made costs of capital much higher for those companies than in the recent past. With projections for a steep drop in net interest income and margins, investors aren't seeing the performance in the bank justify its high share price.
Signature looks to be the sole survivor
Elsewhere, shares of Signature Bank were down 3% after having been lower by as much as 10% earlier in the trading session. The other primary provider of financial services to crypto-related companies initially dropped in sympathy with Silvergate, but Signature was smart enough to issue a statement asserting its ability to weather difficult conditions.
Investors had become worried about Signature in light of a mid-quarter update that it issued earlier in March. The bank said that spot deposit balances had fallen by $826 million, with Signature having intentionally reduced deposits from digital asset clients by $1.51 billion. Even so, that still left Signature with nearly $89 billion in deposits, showing the bank's diversification compared to Silvergate's concentrated exposure to cryptocurrency-related customers.
Silvergate's news prompted Signature to issue a new update Thursday morning, asserting a stable commercial banking business with more than $100 billion in assets, a wide range of depositors, and high capital ratios indicating financial strength. It offered details on its liquidity position, which showed extensive cash on hand, unused capacity for borrowing, and marketable securities.
The FTX cryptocurrency exchange scandal affected both Signature and Silvergate, but Signature's overall exposure compared to its size wasn't nearly as high. Nevertheless, Signature stock has fallen roughly 70% from its highs in early 2022, giving back just about all of the gains from the big boom in digital assets in late 2020 and 2021.
