SVB Financial Plunges to New 52-Week Low After Federal Reserve Rate Hikes
By On Thursday, the Silicon Valley Bank (SVB) parent company, SVB Financial, suffered a drastic plunge in its stock price, dropping by an astounding 60%.[0] The stock continued to sink overnight, with premarket trading on Friday bringing it to a new 52-week low of $106.04.[1] This led to the bank’s closure on Friday, with the US Federal Deposit Insurance Corporation (FDIC) acting as a receiver.[2]
SVB Financial had previously announced a $1.75 billion share sale and a cut in guidance.[3] Deposits had been declining due to the funding drought that many startups have been facing.[3] There are also huge concerns about the bank’s loans to the tech industry.[3]
The Federal Reserve’s aggressive rate hikes have been a major factor in the bank’s collapse. The 10-year Treasury yield dropped 10 basis points to 3.82%, while the 2-year yield sunk 11 basis points to 4.79%.[4] SVB had invested much of its money in Treasury bonds with long maturities, and these bonds have seen their prices fall as a result of the rate hikes.[5]
The bank’s fire sale of its bond portfolio resulted in a $1.8 billion loss and the necessity of a $2.25 billion capital raise.[1] CEO Greg Becker tried to calm tech investors and startups during a Thursday Zoom call, but rumors and concerns about the bank’s financial position had already been spreading for months.[6]
Billionaire hedge fund manager Bill Ackman compared SVB to Bear Stearns, the first lender to collapse at the start of the 2007-2008 global financial crisis, tweeting that “the failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash.”[7] He suggested that if private capital can’t provide a solution, a “highly dilutive” government bailout should be considered.[8]
Ex-Treasury Secretary Larry Summers said SVB’s implosion shouldn’t pose a systemic risk to the US financial system as long as depositors are made whole.[9] Secretary of the Treasury Janet Yellen told legislators on Capitol Hill Friday that the department was aware of recent developments and was monitoring the situation.[10]
0. “Bank Stock Selloff Triggered by SVB Financial Liquidity Crunch” Morningstar, 10 Mar. 2023, https://www.morningstar.com/articles/1143298/bank-stock-selloff-triggered-by-svb-financial-liquidity-crunch
1. “What to know about the spectacular collapse of Silicon Valley Bank” NPR, 10 Mar. 2023, https://www.npr.org/2023/03/10/1162599556/silicon-valley-bank-collapse-failure-fdic-regulators-run-on-bank
2. “What is Silicon Valley Bank? Here's what to know after sudden collapse” New York Post , 10 Mar. 2023, https://nypost.com/2023/03/10/what-is-silicon-valley-bank-and-why-did-it-suddenly-collapse
3. “Dow Jones Futures Fall With Jobs Report Due After S&P 500 Sell-Off; SVB Financial Still Crashing | Investor's Business …” Investor's Business Daily, 10 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-sp-500-breaks-support-as-svb-financial-slams-bank-stocks-jobs-report-due/
4. “Dow closes more than 300 points lower, posts worst week since June as Silicon Valley Bank collapse sparks selloff: Live updates” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/09/stock-market-today-live-updates.html
5. “Troubles at Silicon Valley Bank ripple across Boston tech scene” The Boston Globe, 10 Mar. 2023, https://www.bostonglobe.com/2023/03/10/business/troubles-silicon-valley-bank-ripple-across-local-tech-scene/
6. “Are Failing Banks About to Destroy the Economy?” VICE, 10 Mar. 2023, https://www.vice.com/en/article/v7b4jx/silvergate-svb-failing-banks-economy
7. “Silicon Valley Bank meltdown sparks contagion fears: ‘We found our Enron'” New York Post , 10 Mar. 2023, https://nypost.com/2023/03/10/silicon-valley-bank-meltdown-sparks-contagion-fears
8. “Ackman calls on US government to consider Silicon Valley Bank bailout” Business Insider, 10 Mar. 2023, https://www.businessinsider.com/silicon-valley-bank-bill-ackman-billionaire-government-bailout-svb-2023-3
9. “SVB Crash Won't Hurt Financial System if Depositors Are Paid Back: Larry Summers” Bloomberg, 10 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-10/summers-sees-no-systemic-risk-from-svb-if-depositors-protected
10. “Yellen says Treasury Department ‘carefully' watching crisis at ‘a few banks'” Yahoo News, 10 Mar. 2023, https://news.yahoo.com/yellen-says-treasury-department-carefully-watching-crisis-at-a-few-banks-153243680.html
