Silicon Valley Bank, one of the largest banks in the U.S., faces a major share drop of 60 percent, and the news trends are at the top of the headlines.
The share went down right after the bank made the announcement that it would sell stock worth billions of dollars in an attempt to level its balance sheet. The stock sell plan also intends to cut Silicon Valley Bank’s share market outlook for 2023.
The bank said that it would sell stocks worth 2.25 billion US dollars to General Atlantic as a preventive measure to stabilize its balance sheet. The million-dollar stock deal with General Atlantic, a private equity firm, included the shares of the bank that values at more than 500 million US dollars.
The shares that fell over 60 closed at around 106 US dollars. Before the year plan announcement, the bank was maintaining the 52-week high streak of 597 US dollars. This subsequently impacted the bank stocks causing the Index of Nasdaq bank to fall to 8 percent.
SVB, the acronym used for Silicon Valley Bank, is a giant presence in the U.S. venture capitalist (VC) world offering support to VC-backed companies.
The bank has business with more than half of the U.S.-based venture-backed companies and numerous VC firms. SVB is the biggest bank in Silicon Valley on the basis of local deposits.
It is to be understood that any slight variations and differences in the stability of the balance sheet and liquidity of the bank would affect the VC market.
As per insider reports, the bank was getting repeated calls from concerned venture capitalists. This led to the CEO of the bank making a call with all the venture capitalists.
Greg Backer, the Chief Executive Officer of Silicon Valley Bank, assured them that the bank has ample liquidity to support its clients and asked them to stay calm. He opined that the bank would come across a major challenge if they all started to tell each other that SVB was in trouble.
The same report further said that USV, a venture firm based in New York City had already sent an email to its founders and advised them to keep only minimal funds in cash accounts at SVB.
The maximum limit of the cash amount recommended was 250,000 US dollars and it mentioned that SVB was in a severe cash crisis.
Another report said that Founder Fund, the venture capital firm by Peter Thiel, has also advised its founders to close deals with SVB. However, this was not because SVB was declining but as a preventive measure.
The bank did take the time to send a letter to its shareholders that addressed the concerns that arose due to the share fall. The letter, which was from the top tier hierarchy, said that the bank had taken certain decisions because it expected continued higher interest rates, and pressured private and public markets.
The letter further read that the firm was concerned about the elevated cash burn levels from its clients as they invest in their businesses.
CEO Becker said in the letter that while VC deployment has tracked the expectations of the bank, the client cash has remained elevated and increased further in February and resulting in lower deposits than forecasted. Silicon Valley Bank Stock Plunge By 60% Raising Concerns Among Startups
SVB is trying to combat the struggling economy and is taking enough measures to survive through inflation. The current inflation rate in the U.S. is reported to be 0.1 percent less than the previous year’s rate. It was 6.5 percent earlier, and after the 12 months that ended in Jan 2023, it was reported as 6.4 percent.
This is just below the healthy range, although it could be going up any time as the current financial end by this month and the next financial month is starting from April onwards.
Inflation is always a nightmare for investors as it would significantly reduces savings. The inflation rate would also be directly proportionate to the real returns on investment if the returns are not adjusted for price rise.
It means the higher the inflation, the lower the returns, the higher the rate of inflation goes, and the more it would affect the fortune growth of the investor.
The SVB Stock Drop Impact On Others
The bank stocks nearly hit a hard bottom as the SVB stocks plummeted.
The shares of Zion Bancorp, ZION.O, fell by more than 12 percent.
The most affected bank was the San Francsico-based bank First Republic (FRC.N), which went below 16.5 percent and was recorded in S&P 500 index as the second biggest decliner. This comes after the bank shares had reached its lowest level in the previous October.
Other bank shares that sunk are Citigroup Inc (C.N) by 4 percent Wells Fargo & Co (WFC.N) by 6 percent, Bank of America Corp (BAC.N) by 6 percent, and JPMorgan Chase & Co (JPM.N) by 5.4 percent.