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Venture capital-exposed banks' stock prices suffer after SVB capital raise news


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Venture capital-exposed banks' stock prices suffer after SVB capital raise news

Several banks with venture capital exposure saw stock price pressure following the news of SVB Financial Group's capital raise plans and midquarter update.

First Republic Bank, Western Alliance Bancorp. and PacWest Bancorp all saw double-digit drops in their stock prices March 9. Equity analysts attributed the declines to the companies' exposure to venture capital, much like SVB, which recently announced that it sold its available-for-sale securities portfolio and raised capital as part of plans to reposition its balance sheet, and lowered forward guidance as the result of higher-than-expected cash burn among clients.

"I think it's a read-across from Silicon Valley's situation last night," Piper Sandler analyst Matthew Clark said in an interview. "The one area where they do overlap is with venture capital deposits and the related runoff of those deposits, but that's nothing new."

On March 9, PacWest's stock price closed down 25.45%, while First Republic's stock price closed down 16.51% and Western Alliance's fell 12.86% compared to their respective March 8 closing prices. SVB's stock price suffered following its press release after market close on March 8, closing down 60.41% on March 9.

The cash burn rate from pre-initial public offering borrowers in the technology space is impacting liquidity, Janney analyst Tim Coffey said in an interview. Banks like PacWest, First Republic and Western Alliance are exposed to these companies, though not to the same extent as SVB, Coffey said.

"Because of what's happening with Silicon Valley's stock today, I think there's a secondary effect on those three companies," Coffey said.

However, the negative market reaction is overblown, Piper Sandler's Clark said, adding that he does not expect PacWest to consider restructuring its balance sheet like SVB.

"It's getting thrown into the same mix as if they were going to have to deal with restructuring the balance sheet and raising capital, and that's just not the case in our view," Clark said.

With just $11.3 billion in deposits tied to venture banking, the vast majority of which is venture-backed portfolio companies, PacWest does not have the same balance sheet exposure SVB does, Stephens analyst Andrew Terrell said in an interview.

Terrell also feels the negative reaction is disproportionate and Stephens' rating for the company remains at "overweight," he said.