Turmoil at Silicon Valley Bank triggers market panic

Steep losses in bank shares sent major Wall Street indexes lower on Thursday, as turmoil at Silicon Valley Bank’s parent company sparked investor fears about the stability of the financial sector.

The S&P 500 banking index fell more than 6% in its biggest one-day drop in more than two years, after SVB Financial Group announced a massive capital raise to cover a $1.8 billion loss on investment sales.

The four largest banks in the US (JPMorgan Chase, Bank of America, Wells Fargo and Citigroup) saw their share prices plunge 4-6%, wiping $52.3bn off their capitalizations collective market during the day.

Stocks fell broadly on Wall Street, with the Dow Jones industrial average shedding 543 points, or 1.66%. The S&P 500 lost 1.85% and the Nasdaq Composite was down 2.05%.

Shares of SVB Financial, which owns Silicon Valley Bank, plunged more than 60% after the company announced the sale of new shares to cover losses on the sale of government bonds.

Steep losses in bank shares sent major Wall Street indexes lower on Thursday, as turmoil at Silicon Valley Bank’s parent company sparked investor fears.

SVB is battling cash burn due to dwindling deposits from tech startups battling a drought of venture capital funding.

The company’s assets and deposits nearly doubled in 2021, with the bank investing much of those funds in US Treasuries and other government bonds.

But as rising interest rates hit tech startups the bank primarily serves, declining deposits forced SVB to sell bond holdings, which had meanwhile plummeted in market value. due to the rising rate environment.

Silicon Valley Bank CEO Greg Becker is pictured ahead of the turmoil that has engulfed his company.

The turmoil in SVP sparked a sell-off in pairs with similar exposure, with San Francisco-based First Republic tumbling 16.52% after hitting its lowest level since October 2020.

Falls in the massive Big Four banks, though smaller in percentage terms, dragged markets lower, with the 5.4% loss in JPMorgan weighing more than any other stock in the S&P 500.

‘The rise of Silicon Valley made everyone nervous about people’s capital levels and what deposits are doing. A lot of institutional investors don’t feel very good about owning certain banks right now,” said RJ Grant, head of trading at Keefe, Bruyette & Woods in New York.

“It just makes people freak out because Silicon Valley has historically been a very strong, well-run bank. If they’re having problems right now, people wonder what happens to other banks that are of lesser quality and don’t have the reputation that Silicon Valley Bank has.”

SVB Chief Executive Greg Becker said customer cash burning increased in February.

A crucial lender to early-stage companies, SVB is the banking partner for nearly half of US corporate-backed healthcare and technology companies listed on stock markets by 2022.

“While VC (venture capital) deployment has followed our expectations, client cash burn has remained elevated and increased further in February, resulting in lower-than-expected deposits,” Becker said in a letter to investors

The funding winter is a consequence of a relentless increase in borrowing costs by the Federal Reserve over the past year, as well as high inflation.

At one point during trading on Thursday, SVB shares fell nearly 63%, hitting their lowest level since August 2016, after the lender cut its 2023 outlook and launched a share sale.

SVB’s turmoil raised investor concerns about broader risks in the sector.

Investors were also grappling with the decline of cryptocurrency-focused lender Silvergate Capital, which fell 22% after saying late Thursday that it planned to shut down trading and voluntarily liquidate after suffering losses following the collapse of cryptocurrency exchange FTX.

Shares in Silvergate’s Signature bank fell 9.4%.