Shares of Silicon Valley Bank (SVB) Financial Group fell by as much as 60% after the tech-focused bank said it lost nearly $2B in a recent asset sell-off.
The
financial sector as a whole suffered its biggest drop in three years,
with the four largest U.S. banks losing a combined $52B in market value
on Thursday.
- SVB said that it would
take a $1.8B after-tax loss on sales of securities and plans to raise
$2.25B by issuing new common and preferred stock.
- SVB's assets
and deposits nearly doubled in 2021 during a historic tech boom. SVB
invested much of that money in U.S. Treasurys and other
government-backed debt securities.
- The Federal Reserve's decision to begin raising interest rates last year coincided with a bear market for tech stocks and tech-oriented venture capital firms, leading to a rapid decline in deposits and asset valuations for SVB.
- Some
venture capital firms have reportedly told startups to pull their
deposits from SVB, causing liquidity concerns for the bank.
- In
February, the Federal Deposit Insurance Corporation (FDIC) said that
U.S. banks' unrealized losses on available-for-sale and held-to-maturity
securities totaled $620B as of December 31, 2022 — up from just $8B a
year prior.
- Bill Snead, chairman and chief investment officer
of Smead Capital Management, said: "This is the first sign there might
be some kind of crack in the financial system."
