Silicon Valley Bank drops another 60% and is halted Friday as it's shut down by regulators
- Shares of Silicon Valley Bank, tumbled for a second day Friday and weighed on the entire banking sector again on concern that more banks would incur heavy losses on their bond portfolios.
- The shares were down another 62% in premarket trading Friday before they were halted. Regulators then shut down the bank and said the FDIC would protect insured deposits.
- Concern among founders and venture capital investors spiked earlier this week after Silicon Valley Bank surprised the market by announcing late Wednesday it needed to raise $2.25 billion in stock.
Shares of SVB Financial Group, known as Silicon Valley Bank, tumbled for a second day Friday before the bank was shut down by regulators. The failure raised fears more banks would incur heavy losses on their bond portfolios.
SVB's CEO, Greg Becker, held a call with clients Thursday afternoon to calm their fears, CNBC learned, after a 60% tumble in the stock that day. The shares were down another 62% in premarket trading Friday before they were halted for pending news. They did not open for trading with the market at 9:30 a.m. ET.
Midday Friday, regulators shut down the bank and said the FDIC would protect insured deposits.
CNBC's David Faber reported earlier the bank was in talks to sell itself after attempts to raise capital failed, citing sources familiar. However, rapid deposit outflows outpaced the sale process, which made it difficult for any buyer to do a realistic assessment, Faber reported.
The SPDR S&P Regional Banking ETF, which tumbled 8% on Thursday, fell another 4% on Friday as news of SVB's failure hit. Signature Bank, which is known to cater to the crypto sector, declined 22% following a 12% tumble Thursday. First Republic Bank fell 15% following a 17% slide Thursday. PacWest Bancorp lost 38%. Many of these bank shares were halted repeatedly for volatility on Friday.
Major banks outperformed regional banks. Bank of America lost 0.9%. The Financial Select SPDR Fund dropped 1.8%, following a 4% decline Thursday.
"Current pressures facing SIVB are highly idiosyncratic and should not be viewed as a read-across to other banks," wrote analysts Manan Gosalia and Betsy Graseck with Morgan Stanley in a note Friday.
Concern among founders and venture capital investors spiked earlier this week after Silicon Valley Bank surprised the market by announcing late Wednesday it needed to raise $2.25 billion in stock. The bank had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss as its startup clients withdrew deposits, it said.
That news, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter.
SVB customers said they didn't gain confidence after Becker urged them to "stay calm" in a call Thursday afternoon, and the stock's collapse continued unabated, reaching 60% by the end of trading.
The mounting pressures on SVB prompted hedge fund billionaire Bill Ackman to speculate that if private investors can't help shore up confidence in the California lender, a government bailout could be next.
Treasury Secretary Janet Yellen said during testimony Friday on Capitol Hill said there are a few banks she is monitoring very carefully related to the issues at SVB.
SVB said in a letter Wednesday that it sold "substantially all" of its available-for-sale securities made up of mostly U.S. Treasurys.
The bank also previously reported more than $90 billion in held-to-maturity securities, which wouldn't necessarily incur losses unless it was forced to sell them before maturity to cover fleeing deposits. As the Federal Reserve consistently raises interest rates, it is lowering the value of Treasurys. For example, the iShares 20+ Treasury Bond ETF, which is made up of longer maturity Treasurys, is down 24% in the last 12 months.
Investors are also worried about lack of support from Silicon Valley Bank's funding base of tech startups, an area hit hard from the slumping stock market and surging rates. Peter Thiel's Founders Fund and other large venture capital firms asked its companies to pull their funds from SVB, Bloomberg News reported.
"Falling VC funding activity and elevated cash burn are idiosyncratic pressures for SIVB's clients, driving a decline in total client funds and on-balance-sheet deposits for SIVB," wrote the Morgan Stanley analysts. "That said, we have always believed that SIVB has more than enough liquidity to fund deposit outflows related to venture capital client cash burn."
SVB had a market value of $16.8 billion to end last week.
This is a developing story. Check back for updates.
Correction: The Financial Select SPDR Fund declined 4% on Thursday. An earlier version misstated the day.
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