The stock slump in Silicon Valley Bank is rocking financial stocks

  • By James Clayton, Peter Hoskins and Annabelle Liang
  • in San Francisco and Singapore

image source, Getty Images

Shares in Silicon Valley Bank (SVB), a major lender to technology start-ups, plunged Thursday as investors began withdrawing their deposits.

The drop came a day after the bank announced a $2.25bn (£1.9bn) share sale to help bolster its finances.

Shares in banks have fallen around the world – with the four largest US banks, including JP Morgan and Wells Fargo, losing more than $50 billion in market value.

A venture capitalist told the BBC that the day’s events were “wild” and “brutal”.

Stock markets in Asia also fell on Friday, led by stocks in banks.

Shares in SVB experienced their biggest one-day drop ever, as they plummeted more than 60% and lost another 20% in after-hours trading.

But what is more worrying for the bank is that some startups that have deposited money have been advised to withdraw money.

Hannah Chelkowski, founder of Blank Ventures, a fund that invests in financial technology, told the BBC the situation was “wild”. She advises companies in her portfolio to withdraw money.

“It’s crazy how it’s unraveled like this… The interesting thing is that it’s the most startup-friendly bank and has supported startups so well through Covid. Now VCs are telling their portfolio companies to get their money,” she said . .

“It’s cruel,” she added.

SVB is a critical lender to early-stage companies and is the banking partner for nearly half of the U.S. venture capital-backed technology and healthcare companies listed last year.

SVB did not immediately respond to a BBC request for further comment.

In the wider market, there were concerns about the value of bonds held by banks as rising interest rates devalued those bonds.

Central banks around the world – including the US Federal Reserve and the Bank of England – have raised interest rates sharply to curb inflation.

Banks tend to hold large bond portfolios and therefore face significant potential losses. The decline in value of bonds held by banks is not necessarily a problem unless they are forced to sell them.

But if lenders, like Silicon Valley Bank, have to sell the bonds they hold at a loss, it could impact their bottom line.

“The banks are the victims of the rate hike,” Ray Wang, founder and CEO of Silicon Valley-based consulting firm Constellation Research, told the BBC.

“Nobody at Silicon Valley Bank and in a lot of other places thought these rate hikes would have lasted that long. And I think they actually did. They bet wrong,” he added.

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