- Shares of Silicon Valley Bank fell for the second day on Friday and again weighed on the wider banking sector on fears that more banks could take heavy losses on their bond portfolios.
- Concern among founders and venture capitalists grew earlier this week after Silicon Valley Bank surprised the market by announcing late Wednesday that it was to raise $2.25 billion in stock.
- Shares were down another 61% in premarket trading on Friday.
Shares of SVB Financial Group, known as Silicon Valley Bank, fell for the second day on Friday and again weighed on the wider banking sector on fears that more banks could take heavy losses on their bond portfolios .
SVB CEO Greg Becker held a call with clients on Thursday afternoon to calm their fears after the stock fell 60%, CNBC has learned. Shares were down another 61% in premarket trading on Friday.
The SPDR S&P Regional Banking ETF was still down 2.6% on Friday in premarket trading after falling 8% on Thursday. The Financial Select SPDR fund fell 0.8% after falling 4% on Thursday. Signature Bank, which is known for serving the needs of the crypto industry, was down 10% in premarket trading after falling 12% on Thursday. First Republic Bank lost 18% after falling 17% on Thursday.
Big banks were also under slight pressure, with JPMorgan Chase losing 0.4% early Friday after falling 5% on Thursday.
“The current pressures facing the SIVB are highly idiosyncratic and should not be viewed as a cross-reading with other banks,” Morgan Stanley analysts Manan Gosalia and Betsy Graseck wrote in a note Friday.
Concern among founders and venture capitalists grew earlier this week after Silicon Valley Bank surprised the market by announcing late Wednesday that it was to raise $2.25 billion in stock. The bank had been forced to sell all of its available-for-sale bonds at a loss of $1.8 billion as its start-up clients withdrew their deposits, he said.
The news, which follows the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals on Thursday as VCs ordered their holding companies to move funds, according to people with knowledge of the matter. .
SVB customers said they had not gained confidence after Becker urged them to ‘stay calm’ during a call on Thursday afternoon, and the stock slump continued without slackens, reaching 60% at the end of the negotiation.
Mounting pressure on SVB has prompted hedge fund billionaire Bill Ackman to speculate that if private investors can’t help bolster confidence in the California lender, a government bailout could be next.
SVB said in a letter on Wednesday that it had sold “substantially all” of its available-for-sale securities consisting primarily of U.S. Treasuries.
The bank also previously reported more than $90 billion in held-to-maturity securities, which would not necessarily suffer losses unless it was forced to sell them before maturity to cover runaway deposits. While the Federal Reserve is constantly raising interest rates, it is lowering the value of Treasuries. For example, the iShares 20+ Treasury Bond ETF, which is made up of longer-dated Treasury bonds, is down 24% in the past 12 months.
Investors are also concerned about the lack of support from Silicon Valley Bank’s tech start-up funding base, an area hard hit by the stock market crash and soaring rates. Peter Thiel’s Founders Fund and other major venture capital firms have asked his companies to withdraw their funds from SVB, Bloomberg News reported.
“The drop in venture capital funding activity and high cash burn are idiosyncratic pressures for SIVB’s clients, resulting in lower total client funds and deposits on SIVB’s balance sheet,” wrote the Morgan Stanley analysts. “Having said that, we have always believed that SIVB has more than enough liquidity to fund deposit outflows related to the cash burn of venture capital clients.”
SVB had a market value of $16.8 billion at the end of last week. The bank was worth $6.3 billion on Thursday and that value is expected to fall further when trading begins on Friday.
This is a developing story. Check back for updates.
Correction: The Financial Select SPDR fund was down 4% on Thursday. An earlier version incorrectly indicated the day.