Photographer: David Paul Morris/Bloomberg via Getty Images David Paul Morris/Bloomberg/Getty Images SVB Financial Group bonds are plunging alongside its shares after the company moved to shore up capital after losses on its securities portfolio and a slowdown in funding. Silicon Valley Bank headquarters in Santa Clara, California, US, on Thursday, March 9, 2023. The move is aimed at preventing more bank runs and helping tech companies to continue paying staff and funding their operations. US regulators said Sunday that they would guarantee all SVB customers’ deposits. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors. The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it as investors began to fear a repeat of the global financial crisis a decade and a half ago.īy Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. That set off panic among customers, who withdrew their money in large numbers. While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances. That forced companies to draw down on deposits held by SVB to fund their operations and growth. At the same time, they were struggling to raise new venture capital funding. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.Īt the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. SVB’s collapse came suddenly, following a frenetic 48 hours during which customers yanked deposits from the lender in a classic run on the bank.īut the root of its demise goes back several years. Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements. SVB benefited hugely from the tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services. It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom. It provided banking services to nearly half of all US venture-backed technology and life science companies. Justin Sullivan/Getty ImagesĮstablished in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. A Brinks armored truck sits parked in front of the shuttered Silicon Valley Bank headquarters on Main Santa Clara, California, United States.
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