Why SVB Financial Group Dropped 10% on Monday

By Markets Fool.com

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What: Shares of SVB Financial Group closed down by about 10.6% on Monday, as Brexit-related concerns continued to hit the financial industry hard.

So what: Though Silicon Valley Bank, SVB Financial's largest subsidiary, has very little direct European exposure, investors seem worried that rates may stay lower for longer, affecting the company's profitability.

Investors have been buying shares of the bank under the belief that it would see its profits swell with each rate increase. About 79% of the bank's total funding was non-interest bearing at the end of the first quarter.

In addition, about 54% of the bank's assets are held in investment securities -- primarily U.S. Treasuries and agency mortgage-backed securities -- which will earn lower returns in a lower-rate environment. A combination of outsize non-interest bearing deposits and investment securities on its balance sheet make it an ideal vehicle for betting on the direction of interest rates in the United States.

Now what: Traders are increasingly pointing toward an environment in which the Federal Reserve holds rates at the current level of 0.25% to 0.50%. This has only served to tamp down investors' expectations about SVB Financial's ability to ride rate increases to bigger profits.

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The article Why SVB Financial Group Dropped 10% on Monday originally appeared on Fool.com.

SVB Financial provides credit and banking services to The Motley Fool.Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends SVB Financial Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.