Silicon Valley Bank, doing business as SVB Financial Group, is experiencing the worst of its days with its share price tumbling 23.52% in pre-market, after a massive 60.41% drop on Thursday.
Considering the bank’s stock sell-off, SVB Financial Group (NASDAQ: SIVB) is now changing hands at $81.10 in what is considered the worst week for the company in roughly a decade. The strain on the company’s stock stems from its latest fundraising through $1.75 billion in stock sales. The company released the raise this week and said it plans to use the funds to cushion the $1.8 billion hole caused by the sale of a $21 billion losing bond portfolio consisting primarily of US Treasuries. According to a Reuters report. report.
While the company had good plans for the increase, the move worried investors who believe the company will still be unable to cover its bond shortfall. With the liquidations, the company’s CEO, Gregory Becker, has been calling on the company’s venture capital investors to reassure them that their deposits are safe at their backs. Two people familiar with the development spoke on condition of anonymity.
SVB is the banking partner of choice for Silicon Valley startups. The bank ranked as the top lender for about 50% of the startups that went public last year. Investors are still concerned that the devaluation of these companies’ funds may be unsustainable in the medium to long term given the realities of the current economic outlook.
With the sell-off experienced, investors reportedly began withdrawing their funds from Silicon Valley Bank and sources confirmed the move. Bank runs can degenerate into insolvency and this can spell further doom for investors.
It’s not all bad for Silicon Valley Bank
The Fear, Uncertainty, and Doubt (FUD) surrounding Silicon Valley Bank right now may be bad press, but it’s not all bad for the financial services company right now. With Wedbush Securities analyst David Chiaverini saying he doesn’t think SVB is in a liquidity crisis, the bank’s chief executive is already asserting strategies to balance his books.
One of the measures is to double its term loan to $30 billion while also reinvesting its short-term debt.
“We are taking these actions because we expect continued higher interest rates, depressed public and private markets, and elevated levels of cash consumption by our customers,” Becker said in the letter.
“When we see a return to the balance between risky investing and cash burning, we will be well positioned to accelerate growth and profitability,” he said, noting that SVB is “well capitalized.”
The very challenges that SVB is experiencing is one of the issues that has caused major crypto bank Silvergate Capital Corp to announce a voluntary closure of its business followed by a liquidation of its assets.
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Benjamin Godfrey is a blockchain enthusiast and journalist who enjoys writing about the real-life applications of blockchain technology and innovations to drive mainstream acceptance and global integration of emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain-based sites and media. Benjamin Godfrey is a lover of sports and agriculture.
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