SVB tanks
SVB Financial [SIVB], the parent company of Silicon Valley Bank, saw its share price slump 60% on 9 March and lost a further 20% in after hours trading as major losses on securities including US treasury bonds prompted start-ups to withdraw funds.
The bank, which partnered more than half of the technology and healthcare companies that IPOed in 2022, sought to raise $2.25bn through share sales, whilst liquidating its bond holdings on 8 March.
There are fears that SVB’s struggles could spiral into a full-blown Wall Street crisis, as major investment banks see their share prices slump.
SVB CEO Gregory Becker attempted to calm investors following the slump, calling clients to assure them that their money was safe.
Banking insecurities
On Wednesday, SVB announced that it was raising $2.25bn in capital, with $1.25bn coming via a common share offering, $500m via mandatory convertible preferred shares, and $500m in a private sale of common stock to PE firm General Atlantic.
According to its investor prospectus, the share sale was instigated to fill the hole left by the abrupt liquidation of its securities portfolio. The bank liquidated all $21bn of its sellable securities, mainly consisting of US treasury bonds, realising a $1.8bn loss.
Returns on the securities had been lagging the market, and high interest rates had already fuelled concerns that SVB’s investments into securities were leaving it with unrealised losses. Following the share sale, VC firms including Peter Thiel’s Founders Fund started advising clients to withdraw their cash from the bank amid concerns over its stability.
Ratings agency Moody’s downgraded SVB to Baa1, and the stock tanked, falling 60.27% on Thursday.
Wider implications
SVB’s troubles began on the same day that crypto bank Silvergate Capital announced it was winding down its operations following turmoil in crypto markets. Taken together, there are real fears that the problems could spread throughout the financial sector, similarly to how the collapse of Bear Stearns in 2008 triggered the great financial crisis.
The S&P 500 Financials Index fell 4.1% on Thursday, its worst day since 2020. JPMorgan’s [JPM] share price fell 5.41%, and the US’s four largest banks (including JPMorgan) lost a combined $50bn in market cap. San Francisco-based First Republic [FRC] fell 16.51%.
Analysts, despite the hysteria, don’t appear to believe that the current run is existential even for SVB. Wedbush analyst David Chiaverini said in a report that the firm “[does] not believe that SIVB is in a liquidity crisis.”
Christopher Whalen, chairman of financial consulting firm Whalen Global Advisors, told Bloomberg that while he’s not concerned about the survival of larger banks, “a lot of the small guys are going to take a terrible kicking.
“Many of them will have to raise equity.”
Regional banking ETFs hit
Regional banking ETFs have been hit by the SVB news. As of 8 March, SVB was the top holding in the SPDR S&P regional banking ETF [KRE] with a 2.34% weighting, and the 11th largest in the iShares U.S. Regional Banks ETF [IAT] with a 3.19% weighting. KRE fell 1.77% in the year to 8 March before falling a further 8.11% on 9 March; IAT fell 0.40% in the year to 8 March, then a further 8.16% on 9 March.
Dan McEvoy 