On Thursday, investors at certain venture capital firms asked portfolio businesses to withdraw their funds from Silicon Valley Bank out of fear for the viability of the tech industry mainstay’s finances, sending shockwaves across the startup sector.
The unexpected announcement by Silicon Valley Bank
The unexpected announcement made by Silicon Valley Bank on Wednesday that it would take extraordinary measures to protect its finances in the face of a deteriorating business climate for the start-ups and other technology firms that make up the majority of its clientele served as the catalyst for the bank’s spiral.
The bank reported that it had borrowed $15 billion and disposed of $21 billion of its most liquid investments. Those that can be traded easily—and staged an emergency stock sale to obtain money.
Hesitation of Banks
Banks are hesitant to make any of those movements, much less all three at once. And when they do, the actions are frequently expertly orchestrated. Thursday saw a 60 percent decline in the price of Silicon Valley Bank’s stock. As traders rushed to offload their holdings following the news.
An inquiry for comment was not answered by a bank spokesperson.
Only the run on Washington Mutual during the 2008 financial crisis. When that bank had around $300 billion in client deposits. It would be bigger than Silicon Valley Bank’s failure if it happened.
Silicon Valley Bank reported $212 billion in customer assets at the end of the previous year.
The bank’s downturn
The bank’s downturn drove down the stock prices of its rivals as worries abounded that others would experience the same issues. First Republic Bank in California dropped 16.5 percent. Followed by Zions Bancorporation (11.4 percent) and Signature Bank (more than 12 percent) in New York.
Larger banks are also impacted. While JPMorgan Chase slumped 5.4 percent, Bank of America and Wells Fargo both had 6.2 percent declines. In the early phases of the coronavirus crisis, the KBW bank index, which tracks the stocks of 24 major banks, had a drop of about 8%. Which was its largest one-day movement since June 2020.
Some of the Connected Videos & Updates:
CNBC’s Hugh Son joins “Squawk Box” to discuss what’s happening at Silicon Valley Bank and whether there’s a risk of contagion from high-profile investors pulling their money from the bank.
Listen to Complete Bloomberg Report at Bloomberg Surveillance: Early Edition’ Full
