The SVB Financial (SIVB) financial crisis deepened Friday with shares plummeting before trade was halted. CNBC reported the company sought a buyer after being unable to raise capital in a Thursday offering. However, deposit outflows are outpacing the sales process as customers race to withdraw funds, making it difficult for buyers to value the bank and making any potential deal less attractive.
The parent company of Silicon Valley Bank sent shock waves through the financial industry with a desperate billion to raise $2.25 billion to stem its liquidity problems. SIVB stock collapsed more than 60% during regular trade on Thursday, then another 63% in Friday’s premarket session before trading was halted.
Santa Clara, Calif.-based Silicon Valley Bank has been the go-to lender for many tech startups. However, higher interest rates caused a recent decline in venture capital investments, and clients burned cash at a higher clip. That resulted in shrinking deposits.
Founders Fund, the venture capital fund cofounded by tech billionaire Peter Thiel, on Thursday advised companies to withdraw holdings from SVB, due to concerns about financial stability, Bloomberg reported. Stability concerns reverberated across the banking sector, hitting banks base in the Western U.S. particularly hard.
To salve its cash issues, SVB Financial sold $21 billion in fixed-income investments for a $1.8 billion loss. Wednesday, SVB announced a set of $2.25 billion stock offerings in an attempt to restructure its balance sheet.
The sale includes $1.25 billion in common stock and a $500 million mandatory convertible sale. Growth equity investor General Atlantic agreed to purchase $500 million of common stock in a private transaction.
A tweet from Bill Ackman, CEO of Pershing Square Holdings said, “After what the Feds did to @jpmorgan after it bailed out Bear Stearns, I don’t see another bank stepping in to help.” He also said, “The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall. That is why gov’t intervention should be considered.”
Silicon Valley Bank Halted As Selloff Accelerates
The Silicon Valley Bank news reverberated throughout the financial sector. PacWest Bancorp (PACW) dropped 25% Thursday, then careened almost 25% again early Friday. First Republic Bank (FRC) shed 17% during the day, accelerating to a 37% loss early Friday. Charles Schwab (SCHW) closed roughly 13% lower after Thursday’s news, then tumbled 9.5% Friday.
US Bancorp (USB) slid 7% on Thursday, and opened 5% lower on Friday. Bank of America (BAC) swooned 6.2% Thursday, and dropped another 3.8% Friday morning. JPMorgan (JPM) carved a 5.4% loss on Thursday, slowing to a 1.4% decline at Friday’s open.
SIVB stock had a massive rally off 2020 lows, and peaking in November 2021. It had since declined 65% through Wednesday, before Thursday’s collapse.
SVB recorded six straight quarterly losses as economic conditions turned unfavorable.
SIVB stock plummeted 60% Thursday to 106.04 following the restructuring news. Shares continued to fall, down 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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