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Gregory Becker, CEO of SVB, has been running around calling their clients to reassure them that their money is safe with the bank.
SVB Financial Group, whose business name is Silicon Valley Bank – a major corporate banking firm for technological companies – collapsed by 60% in its stock, which is a loss of around 80 billion dollars (USD) from bank shares.
Silicon Valley Bank, which is trusted by many large technological companies (both public and private) like Bill.com, Teradyne, and Cloudera, tried to shore up its balance sheet on Wednesday by having a share sale worth $1.75 billion. This was in effort to cover up losses up to $1.8 billion caused by a forced loss-making $21 billion bond portfolio, majorly consisting of U.S. Treasuries.
This high amount fund-raises on such a short notice really scared the clients, who began withdrawing their money urgently. The company’s stock reached its all-time low since 2016 when the market closed shares slid by a further 26% in extended trade window.
Due to hiked rates by the US Federal Reserve to oppose sticky core inflation, venture capital funds dried out, causing lack of cash for startups in the middle of falling valuations – which withdrew their deposit money fearing another recession. Several startups, like Peter Thiel’s Founders Fund, have advised their founders to take precautionary steps by withdrawing money from SVB.
On their website, SVB states that around 50% of venture-based technological firms in the states bank with them, making them a major startup-involved firm. Another startup from San Fran reported to Reuters that they took out all their funds from SVB through a wire transfer, that appeared in another bank account of theirs around 4 pm (pacific time) as a “pending” income.
This downfall has had collateral damage too – SVB’s plummet also pulled down other major US banks. JPMorgan Chase & Co fell by 5.4%, Bank of America Corp by 6%, Citigroup by 4% and Wells Fargo & Co by 6% as well. JPMorgan’s valuation has reportedly gone down by $22 billion. These downfalls directly caused major Wall Street indices to fall on Thursday – some of them being Dow Jones Industrial Average (a 1.66% slide), S&P 500 (1.85% drop) and Nasdaq Composite (a 2.05% plummet).
SVB has said that they will double their term borrowing to 30%, as they plan on re-investing the stock sale funds into short-term debts. CEO Becker also mentioned that SVB is “well-capitalized”, and will be in a good position to accelerate their growth and profit-making ability as soon as they see a balance between capital venture investment and cash burn.
Around seven weeks ago, SVB has predicted a drop in net interest income around the “high teens” percentage, but they now changed it to “mid-thirty” percentage.
Payden & Rygel’s head of investment grade credit strategy, Natalie Trevithick thinks that SVB’s equity was doing worse than its bonds, and expects their future performance to be very dependent on incoming news. She doesn’t have much hope for them, however, and doesn’t predict any recovery in the near term, saying that it isn’t cheap enough to pull in buy-the-dip people back.
However, Wedbush Securities and their analysts do not think SVB is in any kind of liquidity crisis, and that they have received a good amount of proceeds from raising capital.