SVB Financial 2Q16 Earnings Call Notes

SVB Financial’s (SIVB) CEO Greg Becker on Q2 2016 Results

VC fundraising was lower in Q2 but still strong

“Closer to the innovation space, the venture capital and technology markets remain mixed in Q2 although there were some bright spots. VC fund raising was lower in Q2 but still strong with limited partners committing near $9 billion to larger funds, and high performing firms with established general partners. We view this as good news for the quarters to come.”

Fundraising dominated by late stage private companies. Funding to early stage startups declined. Concern over valuation still weighing on IPO

” But the solid dollar figures were dominated by a small number of very large rounds to late-stage private companies. At the same time funding to early stage startups declined as investors opted to put their money where they perceive momentum, and staying power. VC-backed exits were only marginally better in the second quarter. Concern over late-stage valuations and uncertainty in the markets continue to weigh on IPO prospects. There were 12 venture-backed IPO in the U.S. in Q2, only three of them Tech although all performed well.”

Market dynamics led to slower client fund flows and some stress with early stage loans

“Although our results during the quarter were positive, these market dynamics continue to affect SVB primarily in three areas; slower total client funds flows, some stress with early-stage loans, and lower warrant gains. Total client funds which include on-balance sheet deposits and off-balance sheet client fund investments have decreased. Deposits decreased primarily due more challenging fund raising environment. In addition, our ongoing efforts to direct clients toward appropriate off-balance sheet products resulted in nearly $2 billion of funds flowing from deposits to off-balance sheet products in Q2.”

Still optimistic though for many reasons

“Why we’re optimistic? So we have some near-term challenges that could persist for a few more quarters but we believe they are manageable. We were seeing many positive signs and opportunities despite these challenges. So I want to tell you why we’re optimistic about the rest of 2016. First, our clients are doing well overall; second, we’re winning new clients at a very healthy pace; third, we’re building strategic partnerships to support expansion of our payments and digital efforts; and fourth, we continue to build a platform that will support our long-term growth within the innovation economy.”

Not huge impact from Brexit but maybe if we were looking at Europe again might go to Germany or Nordics

“If we were to go into Europe again what we talked about in the past is that it may be looking at branching into Germany maybe branching into the Nordics but again we don’t believe Brexit really has any impact on that.”

A little more stability makes us feel better for the second half

” what would have happened in the second quarter and the first quarter which is, you have companies again that failed to raise that next round of financing, they’ve put themselves up for sale, they can’t find a buyer. We had roughly 15 early-stage companies that weren’t able to accomplish that in the first quarter, we had 11 in the second quarter. And again, if you look at the average for 15 it was around 10. So again, feel pretty good about where we are from an outlook perspective, and its more clarity which is where we are right now.”

It’s amazing how fast markets recovered from Brexit

” There was definitely a hesitation of deal activity that we saw and now that it’s over it’s amazing how fast markets recovered with the exception of the 10-year treasury and along with interest rates and just the activity in the UK. We spent a lot of time talking to our team of clients and what’s great about our client base is that they are very resilient. They look at this, they saw it happen, they adjusted it very quickly and now they are executing on how this will impact them but in the end we don’t think it will be a dramatic impact.”

Our innovation market is still a little bit soft

“As you can hear from our remarks, although I did — our innovation market is still a little bit soft. The good news there is we feel there is a lot more clarity than working in the first quarter and that gives us kind of a more confident and in kind of what our outlook is.

Marc Cadieux

Stress in early stage portfolio is not driven by the same things as the sponsor led buyout segment. Those are one off issues

Hey, it’s Marc. The only thing that I would add to that is that there is — I think, part of your question, there is no correlation between what’s caused distress in the early-stage portfolio segment versus what’s happened in the sponsor-led buyout segment. In particular to the couple of NPLs that we have in sponsor-led buyout, those have really been company-specific issues, not indicative of any broader trend, not indicative of any stress more broadly in that part of the portfolio or elsewhere.