The Fall of Silicon Valley Bank Shares Shakes Investors Worldwide

Shares of Silicon Valley Bank (SVB), a key lender to technology startups, fell on Thursday as investors began to withdraw their deposits. The decline comes after the bank announced a stock sale of $2.25 billion to strengthen its finances, reported the BBC.

The four largest U.S. banks, including JP Morgan and Wells Fargo, lost more than $50 billion in market value, and bank stocks fell worldwide. Stock markets in Asia also declined on Friday, led by falling bank shares.

SVB shares recorded the largest single-day drop in history, plummeting by more than 60 percent and losing another 20 percent in after-hours trading. The company initiated the stock sale after losing about $1.8 billion when it disposed of part of its portfolio, primarily U.S. government bonds.

What is even more concerning for the bank is that some newly established companies with deposited funds have been advised to withdraw their money. Hannah Chelkowski, founder of Blank Ventures, a fund that invests in financial technology, told the BBC that the situation is ‘wild’ and added that she advises companies in her portfolio to withdraw their funds.

‘Banks are victims of rising interest rates’

– It’s crazy how this has all unraveled… Interestingly, this is the bank that has been the friendliest to startups and has supported startups so much through Covid. Now VCs are telling their portfolio companies to pull their funds – said Chelkowski.

SVB, as a key lender for early-stage businesses, is the banking partner for nearly half of the U.S. technology and healthcare companies that went public last year. SVB did not immediately respond to the BBC’s request for further comment.

In the broader market, there were concerns about the value of bonds held by banks as rising interest rates have made those bonds less valuable. Central banks around the world, including the U.S. Federal Reserve and the Bank of England, have sharply raised interest rates as they try to curb inflation.

Banks typically hold large bond portfolios and as a result, suffer significant potential losses. The decline in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them. However, if, like SVB, lenders must sell bonds they hold at a loss, it could impact their profits.

– Banks are victims of rising interest rates – said Ray Wang, founder and CEO of Constellation Research, a consulting firm in Silicon Valley, to the BBC.

– No one at Silicon Valley Bank and many places thought these interest rate hikes would last this long. And I think that has really happened. They bet wrong – he concluded.