SVB Financial Group Shares Plunge 60% After $1.8 Billion Loss and VC Warnings
Shares in SVB Financial Group, the parent company of Silicon Valley Bank, plummeted 60% on Thursday following the announcement that the bank had lost $1.8 billion selling its investments, and would sell shares to raise $2.2 billion.[0] This plunge had a domino effect on bank stocks across the U.S. markets, with the Nasdaq Bank Index dropping 8%.[1]
The Silicon Valley Bank has long been a favourite amongst tech startups, venture capitalists, and entrepreneurs, and it serviced nearly half of all VC-backed tech and life sciences companies last year.[2] In an attempt to manage its cash crunch the bank offloaded $21 billion in fixed-income investments for a $1.8 billion after-tax loss, and announced a set of $2.25 billion stock offerings.
However, things took a much worse turn recently with venture capital firms such as Peter Thiel’s Founders Fund advising companies to withdraw holdings from SVB, due to concerns about financial stability. Wall Street analysts said that the troubles at SVB were unlikely to spread widely throughout the banking system, but the KBW Bank Index, which tracks the performance of leading bank stocks, fell 7.7% on Thursday, in what was the biggest decline since June 2020.[3]
Bill Ackman, CEO of Pershing Square Holdings, dismissed the idea that another bank would save SVB, citing another example from 2008: the takeover of investment bank Bear Stearns by JPMorgan.[4] He tweeted, “After what the Feds did to @jpmorgan after it bailed out Bear Stearns, I don't see another bank stepping in to help @SVB_Financial. The gov’t could also guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections. If @SVB_Financial is indeed solvent, this would buy time to enable SVB to restore the franchise and raise new private capital.”[5]
The significant drop in SVB stock has led to deep concern around the venture world, as the bank has relationships with more than 50% of all venture-backed companies in the U.S. and countless VC firms. The fate of SVB is a huge concern in China, the world’s second-largest venture capital market after Silicon Valley, as SVB was among the first financial institutions to start catering to Chinese startups when traditional banks shunned them.
0. “Why Silicon Valley Bank's crisis is rattling America's biggest banks” Yahoo News, 10 Mar. 2023, https://news.yahoo.com/why-silicon-valley-banks-crisis-is-rattling-americas-biggest-banks-121159393.html
1. “Silicon Valley Bank Stock Plunge Sends Jitters Through The Startup World” Crunchbase News, 9 Mar. 2023, https://news.crunchbase.com/venture/silicon-valley-bank-stock-startup
2. “SVB panic sets in among VC and startups over stock plummeting” Business Insider, 10 Mar. 2023, https://www.businessinsider.com/silicon-valley-bank-panic-stock-dropping-vcs-startups-2023-3
3. “Venture capitalists urge startups to withdraw funds from crisis-laden Silicon Valley Bank” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/10/vcs-urge-startups-to-withdraw-funds-from-silicon-valley-bank.html
4. “‘Too big to fail’ is back as Bill Ackman says government should consider a Silicon Valley Bank bailout” Yahoo Life, 10 Mar. 2023, https://www.yahoo.com/lifestyle/too-big-fail-back-bill-084421574.html
5. “SVB plunges another 40% premarket; Ackman advises government bailout” Seeking Alpha, 10 Mar. 2023, https://seekingalpha.com/news/3946370-svb-plunges-another-40-premarket-ackman-advises-government-bailout
