- Shares of Silicon Valley Bank fell for a second day on Friday, again weighing on the entire banking sector on concerns that more banks would incur large losses on their bond portfolios.
- Concern among founders and venture capital investors increased earlier this week after Silicon Valley Bank surprised the market by announcing late Wednesday that it needed to raise $2.25 billion in equity.
- Shares fell another 45% in premarket trading on Friday.
Shares in SVB Financial Group, known as Silicon Valley Bank, fell for a second day on Friday, again weighing on the entire banking sector on concerns that more banks would incur large losses on their bond portfolios.
SVB CEO Greg Becker held a phone call with clients Thursday afternoon to calm their fears following a 60% drop in the stock, CNBC has learned. Shares fell another 45% in premarket trading on Friday.
The SPDR S&P Regional Banking ETF fell another 1.5% on Friday after falling 8% on Thursday. The Financial Select SPDR Fund was down 1.25% after a 4% decline on Thursday. Signature Bank, which is known to cater to the crypto sector, was down 4% in premarket trade after a 12% drop on Thursday. First Republic Bank was up 3% after a 17% drop on Thursday.
Major banks were also under pressure with JPMorgan Chase losing another 1% early Friday after falling 5% on Thursday.
“The current pressures facing SIVB are highly idiosyncratic and should not be seen as a read-through to other banks,” analysts Manan Gosalia and Betsy Graseck with Morgan Stanley wrote in a note on Friday.
Concern among founders and venture capital investors increased earlier this week after Silicon Valley Bank surprised the market by announcing late Wednesday that it needed to raise $2.25 billion in equity. The bank had been forced to sell all its available-for-sale bonds at a loss of $1.8 billion as start-up customers withdrew deposits, it said.
The news, which came on the heels of the collapse of crypto-focused bank Silvergate, triggered a new wave of withdrawals on Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter.
SVB clients said they lost confidence after Becker urged them to “keep calm” in a call on Thursday afternoon, and the stock plunge continued unabated, reaching 60% by the end of trading.
The mounting pressure on SVB prompted hedge fund billionaire Bill Ackman to speculate that if private investors can’t help bolster confidence in the California lender, a state bailout could be next.
SVB said in a letter on Wednesday that it sold “substantially all” of its available-for-sale securities, which consist mainly of US government bonds.
The bank also previously reported more than $90 billion in held-to-maturity securities, which would not necessarily incur losses unless it was forced to sell them before maturity to cover fleeing deposits. As the Federal Reserve consistently raises interest rates, it lowers the value of government bonds. For example, the iShares 20+ Treasury Bond ETF, which consists of longer-dated government bonds, is down 24% over the past 12 months.
Investors are also worried about a lack of support from Silicon Valley Bank’s funding base of tech start-ups, an area hit hard by the falling stock market and rising rates. Peter Thiel’s Founders Fund and other major venture capital firms asked the companies to withdraw their money from SVB, Bloomberg News reported.
“Falling VC funding activity and increased cash burn are idiosyncratic pressures for SIVB’s clients, driving a decline in total client funds and balance deposits for SIVB,” the Morgan Stanley analysts wrote. “That said, we have always believed that SIVB has more than enough liquidity to fund deposit outflows related to the venture capital client’s cash burn.”
SVB had a market value of $16.8 billion at the end of last week. On Thursday, the bank was worth $6.3 billion, with that value set to fall even more when trading begins on Friday.
This is a development story. Check back for updates.
Correction: The Financial Select SPDR Fund fell 4% on Thursday. An earlier version misinterpreted the day.