He financial SVB (SIVB) The financial crisis deepened on Friday with stocks falling before trading was halted. CNBC reported that the company searched for a buyer after failing to raise capital in a Thursday offering. However, deposit outflows are outpacing the sales process as customers rush to withdraw funds, making it harder for buyers to value the bank and making any potential deals less attractive.
Silicon Valley Bank’s parent company sent shockwaves through the financial industry with a billion desperate to raise $2.25 billion to stop its liquidity problems. SIVB shares tumbled more than 60% during regular trading on Thursday, then another 63% in pre-trade session on Friday before trading was halted.
At the House Ways and Means Committee hearing on Friday, Treasury Secretary Janet Yellen said she is watching the situation at Silicon Valley Bank. “There are recent developments that I am monitoring very closely,” Yellen testified. “When banks experience financial losses, it is and should be cause for concern.”
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Silicon Valley Bank, based in Santa Clara, California, has been the go-to lender for many tech startups. However, higher interest rates have caused a recent decline in venture capital investments and clients have been spending cash at a higher rate. That resulted in reduced deposits.
Founders Fund, the venture capital fund co-founded by tech billionaire Peter Thiel, on Thursday advised companies to pull their stakes from SVB, amid concerns about financial stability, Bloomberg reported. Concerns about stability reverberated throughout the banking industry, hitting the western US base of banks particularly hard.
SVB capital increase attempt
To salvage its cash problems, SVB Financial sold $21 billion of fixed-income investments at a loss of $1.8 billion. On Wednesday, SVB announced a series of $2.25 billion share offerings in an attempt to restructure its balance sheet.
The sale includes $1.25 billion in common shares and a $500 million mandatory convertible sale. Growth equity investor General Atlantic has agreed to purchase $500 million of common shares in a private transaction.
A tweet from Bill Ackman, CEO of Pershing Square Holdings, read: “After what the feds did @jpmorgan after you bailed out Bear Stearns, I don’t see another bank stepping in to help.” He also said: “The risk of bankruptcy and loss of deposits here is that the next bank, the least well capitalized, faces a run and fails and the tokens dominoes keep falling. That is why government intervention should be considered.”
Silicon Valley Bank Halts as Liquidation Accelerates
The news from Silicon Valley Bank reverberated throughout the financial industry. The falls began to slow down on Friday following Yellen’s comments. PacWest Bancorp (PACW) accelerated 25% Thursday, then fell about 14% again early Friday. Bank of the First Republic (FRC) lost 17% during the day, falling another 2.6% on Friday. charles schwab (SCHW) closed about 13% lower after the news on Thursday, then fell 3.5% on Friday.
US Bank (USB) fell 7% on Thursday and a lower 0.8% on Friday. Bank of America (BAC) plunged 6.2% on Thursday but gained 1.6% early Friday after opening lower. JPMorgan (JPM) posted a 5.4% loss on Thursday but rose 3.7% on Friday after an early decline at the market open.
SIVB shares had a massive rally from 2020 lows and peaked in November 2021. Since then, they had declined 65% as of Wednesday, before Thursday’s crash.
SVB posted six consecutive quarterly losses as economic conditions turned unfavorable.
SIVB shares plunged 60% on Thursday to 106.04 on news of the restructuring. Shares continued to fall, another 65% before premarket trading was halted early Friday.
You can follow Harrison Miller for more stock news and updates on Twitter. @IBD_Harrison
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