On March 10, 2023, market watchers are discussing the problems facing Silicon Valley Bank (SVB), as the company’s shares have fallen more than 60% in the last 24 hours. SVB was forced to sell a $21 billion bond portfolio at a loss of $1.8 billion. CEO Greg Becker insists that the financial institution “will be well positioned” and “well capitalized” going forward. Shares of SVB, SIVB, were halted during the pre-market trading session on Friday after the bank announced it would release news.
As SVB’s foundations shake, concerns grow about a potential bailout and market instability
Market strategists and investors are in focus about Silicon Valley Bank (SVB) and US financial institutions like an everything following the voluntary liquidation of Silvergate Bank. SVB is dealing with significant financial problems after the company’s actions, BLIMS, lost more than 60% during the trading session on Thursday. SVB is known for its portfolio of VC and technology deals, but VC activity has been reduced 30% lower over the past 12 months. SVB clients spend funds at an accelerated rate, so SVB’s cash burn is much greater than the investment risk.
SVB then revealed that it was selling its portfolio of available-for-sale (AFS) bonds for $21 billion, with the bank losing a total of $1.8 billion on the sale. “We are taking these steps because we expect continued higher interest rates, depressed public and private markets, and elevated levels of cash consumption by our clients,” SVB chief executive Greg Becker said in a statement. “When we see a return to the balance between risk investing and cash burning, we will be well positioned to accelerate growth and profitability.”
Silicon Valley bank has been halted.
Down 80% in two days now 35. pic.twitter.com/lvZjMUHxzE
— TIC TOC TIC (@TicTocTick) March 10, 2023
It has been said that SVB made some horrible investment decisions before the interest rate hikes, and that the bank’s $21 billion bond portfolio was not performing above the cash burn, and the value of the AFS bond was significantly reduced. Because SVB invested in government-backed debt products such as US Treasury bills, the Federal Reserve’s rate hikes put the bank in a bad position and SVB’s deposits began to decline at a fast pace. Some people believe that if SVB collapses, the failure could be almost as big as the failure of Washington Mutual (Wamu).
Hello, everyone! Silicon Valley Bank is getting worse. Clients who try to get millions of dollars and can’t. Online banking and mobile services are not available to some customers.
Stocks were down 60% before marketing.
If the bank fails, it would be the second largest… https://t.co/dCnew8tzAP pic.twitter.com/h7YcocnvZX
— Genevieve Roch-Decter, CFA (@GRDecter) March 10, 2023
Arthur Hayes, co-founder of Bitmex, joking saying Federal Reserve Chairman Jerome Powell may have bankrupted the American banking system. “JAYPOW could have broken (the) American banking system,” Hayes wrote. “In 2008, it was the banks’ bad credit portfolios, also known as subprime. In 2023, were banks’ portfolios of long-duration bonds like UST and MBS? If it goes down, then remember March 20, big drop, bailout, then big rise! My body is ready.” Billionaire Bill Ackman said his Twitter followers that a government bailout for SVB should be considered.
“The failure of (SVB) could destroy an important long-term driver of the economy, as VC-backed companies rely on SVB for loans and to keep their operating cash,” Ackman wrote. “If private capital cannot provide a solution, a highly dilutive government-preferred bailout should be considered. After what the feds did to (JPMorgan) after they bailed out Bear Stearns, I don’t see another bank stepping in to help (SVB).”
Based on a premarket analysis of SIVB sharesit looks like the bank’s stock had a very volatile trading day on friday and finally stopped. After the stop premarket, the bank said it plans to release some news shortly. SVB’s woes are reminding market participants of the Lehman disaster and the recent troubles Credit Suisse and Deutsche Bank were dealing with when valuations took a hit last October.
S&P recently downgraded SVB to just above junk. DA Davidson analysts gave the company a neutral rating, noting that companies “have not adjusted to the slower fundraising environment” and quantitative tightening (QT) policies stemming from the Federal Reserve. According to CNBC’s David Faber, sources The reporter has been told that Silicon Valley Bank is currently in talks to sell itself.
What do you think the future holds for Silicon Valley Bank and other US financial institutions facing similar challenges, and what impact could their struggles have on the wider economy and the tech industry? Share your thoughts in the comments below.
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