Silicon Valley Bank suspended trading of its shares in the premarket on Friday pending an announcement, as the bank appeared to teeter on the brink of ruin.
Shares of SVB were down 44% in premarket trading, after slumping about 60% in the previous session, after disclosing plans to raise over $2 billion from investors to counter $1.8 billion in losses from the sale of its bond portfolio.
On Thursday night, Founders Fund, the venture capital fund co-founded by Peter Thiel, advised startups to pull their money from Silicon Valley Bank amid concerns about its financial stability, according to Bloomberg.
It came after parent company SVB Financial Group announced a massive equity raise to cover a $1.8 billion loss on the sale of bonds, which the bank was forced to liquidate to cover a steep decline in deposits.
Theil’s warning, and a similar alert from startup incubator Y Combinator, increased fears that a run on SVB deposits could push the bank into insolvency, if it were unable to meet the demand for customer withdrawals.
Shares of SVB were down 44% in premarket trading, after slumping about 60% in the previous session, with investors concerned about the strength of its balance sheet
On Thursday night, Founders Fund, the venture capital fund co-founded by Peter Thiel (above), advised companies to pull money from Silicon Valley Bank
The situation also raised fears of broader market contagion, after the S&P 500 bank index tumbled more than 6% in its biggest one-day drop in over two years on Thursday.
The four largest US banks — JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup — saw their share prices plunge between 4% and 6%, wiping $52.3 billion from their collective market capitalizations for the day.
In response, billionaire hedge funder Bill Ackman led calls for a government bailout for troubled SVB, which caters to the tech startups of Silicon Valley.
‘The failure of SVB Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash,’ wrote Ackman in a tweet.
‘If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered,’ he added.
SVB revealed on Thursday that it is battling cash burn due to declining deposits from tech startups struggling with a venture capital funding drought.
The company’s assets and deposits had nearly doubled in 2021, and the bank poured much of those funds into US Treasuries and other government bonds.
But as rising interest rates battered the tech startups that the bank primarily serves, declining deposits forced SVB to sell off bond holdings — which in the meantime had plunged in market value due to the rising rate environment.
Billionaire hedge funder Bill Ackman led calls for a government bailout for troubled SVB, which caters to the tech startups of Silicon Valley
The turmoil at SVP sparked a selloff in peers with similar exposure, with San Francisco-headquartered First Republic slumping 16.52% after hitting its lowest level since October 2020.
Declines at the massive big four banks, while smaller in percentage, dragged markets lower, with the 5.4% loss at JPMorgan weighing more than any other stock on the S&P 500.
‘The Silicon Valley raise got everybody nervous about people’s capital levels and what deposits are doing. A lot of institutional investors don’t feel great about owning certain banks right now,’ R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York, told Reuters.
‘It just gets people freaked out because Silicon Valley, historically has been a very strong, well-run bank. If they’re having issues right now, people are wondering what about other banks that are lesser quality and that don’t have the reputation that Silicon Valley Bank has.’
Developing story, more to follow.
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