As Pressure Mounts On The Banking Sector, Silicon Valley Bank Declines Another 60%

The shares of Silicon Valley Bank, a subsidiary of SVB Financial Group, fell for a second day Friday, weighing on the entire banking sector again due to concerns that more banks would experience losses on their bond portfolios as a result of the recent market turmoil.

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It has been learned that SVB's CEO Greg Becker held a conference call with clients Thursday afternoon in an attempt to calm their fears after the stock price plummeted 60%. During Friday's premarket trading, the shares of the company were down another 62%.

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As a result of pending news, premarket trading on the shares was suspended.

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After falling more than 8% in premarket trade on Thursday, the SPDR S&P Regional Banking ETF fell another 2% in premarket trade on Friday. Financial Select SPDR Fund is down 0.3% after a 4% decline on Thursday, following a 0.3% decline on Friday. Signature Bank, a company that caters to the crypto sector, was down 9% in premarket trading after its stock plunged 12% on Thursday. There was a 19% drop in First Republic Bank shares on Friday following a 17% drop on Thursday.

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The major banks were mostly flat on Friday morning, with JPMorgan Chase up 0.2% early Friday after tumbling 5% on Thursday.

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“The pressures facing SIVB are highly idiosyncratic and should not be viewed as a read-through to other banks,” wrote analysts Manan Gosalia and Betsy Graseck with Morgan Stanley in a note released on Friday afternoon.

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Negative shock

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Earlier this week, there was a spike in concern among founders and venture capital investors after Silicon Valley Bank shocked the market by announcing late Wednesday that it would need to raise $2.25 billion in stock in order to sustain its operations. According to the bank, its startup clients withdrew deposits from the bank during this time, which forced the bank to sell all its bonds that were available for sale at a $1.8 billion loss.

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This news, coming shortly after the collapse of the crypto-focused Silvergate bank, sparked another wave of withdrawals from bank accounts on Thursday as venture capitalists instructed their portfolio companies to move funds, according to people with knowledge of the situation.

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Customers said they did not gain confidence after Becker told them to "stay calm" in a call Thursday afternoon, and the stock's collapse continued unabated, reaching 60% by the end of the session.

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There have been mounting pressures on SVB that have prompted hedge fund billionaire Bill Ackman to speculate that, if private investors are not able to provide a substantial amount of assistance to shore up the lender's confidence, the government might have to bail it out.

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‘Idiosyncratic pressures’

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The SVB said in a letter Wednesday that it has sold "substantially all" of its available-for-sale securities, primarily U.S. Treasury bills, during the past week.

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Additionally, the bank reported over $90 billion in held-to-maturity securities, which wouldn't necessarily result in losses unless the bank was forced to sell them ahead of maturity to cover fleeing deposits. The Fed has consistently raised interest rates over the past several years, which is causing the value of Treasury bonds to decrease. A good example would be the iShares 20+ Treasury Bond ETF, which is made up of longer-maturing Treasury bonds, which have fallen by 24% in the last 12 months.

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Investors are also concerned that Silicon Valley Bank's funding base of tech start-ups, an area that has been hit hard by the slump in the stock market and rising interest rates in recent years, is not supporting them. Trade Algo reports that Peter Thiel's Founders Fund and other large venture capital firms have asked their companies to pull their funds out of SVB, according to a report in Bloomberg News.

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Morgan Stanley analysts wrote that "Falling VC funding activity and elevated cash burn are idiosyncratic pressures for SIVB's clients, leading to a decline in total client funds and on-balance-sheet deposits for SIVB because of these factors". “Having said that, we have always believed that SIVB has more than enough liquidity in order to fund deposit outflows related to the cash burn of venture capital clients."

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It was estimated that SVB had a market value of $16.8 billion at the end of last week. There is a good chance that the bank's value will drop even further when trading begins on Friday, as its value on Thursday was $6.3 billion.