The Silicon Valley Bank is considered an important financier for start-ups in the early stages.
(Photo: AP)
It was the worst trading day in the history of the financial institution: Silicon Valley Bank shares collapsed by 60 percent on Thursday.
Investors reacted in panic to the bank’s surprise announcement that it had to strengthen its capital position. The financial house from Santa Clara, California, announced the sale of bonds worth 21 billion dollars on Wednesday evening. However, this resulted in a loss of 1.8 billion dollars. This gap is now to be compensated with the issue of new shares in the amount of 2.25 billion dollars.
Silicon Valley Bank is the 16th largest bank by assets. It is a major financier of early-stage startups and venture capital funds. According to its own information, around half of all listed technology and healthcare companies with venture capital financing are customers of the bank.
But the crisis in the tech industry is now also making itself felt at the bank, as long-time CEO Greg Becker admitted in a letter to his investors. The start-up customers would use up their deposits faster than expected. In view of the recent rapid increase in interest rates, new rounds of financing have become difficult and are much smaller. That puts the start-ups under pressure. The market for the once lucrative IPOs has also fallen asleep. As a result, venture capitalists are also bringing fewer deposits back into their accounts.
>> Read about it: Tech investor Peter Thiel: “Google is completely in panic mode”
Some investors are advising their portfolio companies to withdraw funds from Silicon Valley Bank. The Founders Fund of the renowned investor Peter Thiel should also be part of it, as the financial service provider Bloomberg reported.
The turbulence at Silicon Valley Bank caused a broad sell-off in the financial sector on Thursday. The four largest US banks, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo, collectively lost around $52 billion in market value on Thursday.
Crypto bank Silvergate Capital announced a voluntary liquidation on Wednesday. Dubravko Lakos, an analyst at JP Morgan Chase, believes that these could be “harbingers” of further problems at banks, he said on the US stock exchange broadcaster CNBC. There are also problems with office properties. Since Jerome Powell, head of the US Federal Reserve (Fed) only announced further and larger interest rate hikes on Thursday, this could lead to new turbulence.
More: Fed boss promises faster rate hikes and causes new turbulence on the markets