The fall in Silicon Valley Bank stock hammers financial stocks

  • By James Clayton, Peter Hoskins and Annabelle Liang
  • in San Francisco and Singapore

image source, Getty Images

Shares in banks around the world have fallen after problems at a US bank sparked fears of a bigger problem for the financial sector.

Shares in Silicon Valley Bank (SVB), a key lender to tech startups, plunged on Thursday after it announced plans to shore up its finances.

This had a knock-on effect, with the four largest US banks losing more than $50 billion in market value.

Bank shares in Asia and Europe fell sharply on Friday.

Among the UK banks, HSBC shares fell 5.6% and Barclay fell 3.5%.

SVB’s shares saw their biggest one-day drop ever on Thursday when they plunged more than 60% and lost another 20% in after-market trading.

The slide came a day after the bank announced a $2.25bn (£1.9bn) share sale to shore up its finances.

But more worryingly for the bank is that some start-ups that have money deposited have been advised to withdraw funds.

Hannah Chelkowski, founder of Blank Ventures, a fund that invests in financial technology, told the BBC the situation was “wild”. She advises companies in the portfolio to withdraw funds.

“It’s crazy how it just unravels like this. What’s interesting is that it’s the most startup-friendly bank and supported startups so much through Covid. Now VCs are asking their portfolio companies to pull their money,” she said.

“It’s brutal,” she added.

SVB is a crucial lender for early-stage companies, and is the banking partner for almost half of US risk-backed technology and healthcare companies that went public last year.

SVB did not immediately respond to a BBC request for further comment.

In the broader market, there were concerns about the value of bonds held by banks as rising interest rates made those bonds less valuable.

Central banks around the world – including the US Federal Reserve and the Bank of England – have raised interest rates sharply as they try to curb inflation.

Banks tend to hold large portfolios of bonds and as a result sit on significant potential losses. The fall in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them.

But if, like Silicon Valley Bank, lenders have to sell the bonds they hold at a loss, that could have an impact on their profits.

“Banks are victims of the rate hike,” Ray Wang, founder and chief executive of Silicon Valley-based consultancy Constellation Research, told the BBC.

“No one at Silicon Valley Bank and a lot of places thought that these rate hikes would have lasted this long. And I think that’s really what happened. They bet wrong,” he added.

Russ Mould, investment director at AJ Bell, said the ripple effect of the problems at SVB showed that these types of incidents “often suggest vulnerabilities in the wider system”.

“The fact that SVB’s share placement has been accompanied by a fire sale of the bond portfolio raises concerns.

“Many banks have large portfolios of bonds and rising interest rates make these less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealized losses on their interest rates. [bond] inventory.”

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