SVB Financial stock biggest S&P decliner after big Q2 miss, poor guidance

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SVB Financial (NASDAQ:SIVB) shares are plunging 15.5% to new 52-week lows in early Friday afternoon trading, and are being marked as the biggest S&P 500 loser, as the slowdown in private equity and venture capital investment led the regional bank to lower its full-year outlook.

Venture capital flows, which are main driver of SVB’s (SIVB) deposits, peaked in Q3 2021, flattened in Q4 2021, declined in Q1 2022 and retreated even more in the latest quarter, CEO Greg Becker said during his company’s Q2 earnings call. That slump in flows comes in the face of a challenging economic backdrop of Fed tightening, persistently high inflation and recession risks.

Another concern during Q2 was the company’s weaker than expected growth in total client funds due to a lack of fundraising as well as elevated cash burn rates. “While we have historically seen short periods of quarterly client fund declines during significant market cycles, annual average total client funds have only declined twice since 2000, and these pullbacks have been followed by quick rebounds and better-than-market expansion of client activity and funds growth,” Becker wrote in a letter to shareholders on July 21.

Given the banks’ downbeat second quarter results as well as poor prospects for 2022, Jefferies analyst Casey Haire has cut his 2022 EPS forecast by around 15% to $28.95, according to a note written to clients. That compares with consensus estimate (derived from 19 analysts) of $34.94.

Haire, who views SVB (SIVB) as a Buy, contended that “while we agree with mgmt. that it is a question of ‘when not if’ VC investment activity picks up, weak VC flows could persist longer than the next two quarters, which appears to be mgmt.’s base case.” He added that SVB’s weak VC investment activity exposes the bank to credit loss.

Similarly, Wedbush analyst David Chiaverini, who rates SVB (SIVB) as Neutral, has reduced his EPS estimate for 2022 to $26.00 from $34.95, mainly driven by “lower average earning asset growth, lower NIM expansion, lower capital market income, and higher credit cost assumptions,” he wrote in a note.

And Raymond James analyst David Long also lowered his full-year EPS estimate by $2.97 to $31.26. Still, he’s reiterating an Outperform rating as shares of SVB (SIVB) “are unusually inexpensive for long-term investors and will command a premium valuation relative to peers” due to its “unique franchise, low-risk loan portfolio, and excellent L-T growth profile,” he wrote in a note. SIVB stock is off over 46% YTD.

See how SVB Financial earnings fared during the first quarter.