Fears have been heightened over the future of another United States bank this week after Silicon Valley Bank (SVB) announced a significant sale of assets and stocks aimed at raising additional capital.
However, some investors may be concerned that not all is well at the tech startup and VC-focused bank, particularly given the closure of crypto bank Silvergate just a day earlier. Shares in Silicon Valley Bank collapsed over 60%, wiping some $80 billion in value from the bank’s shares.
SVB is one of the top 20 largest banks in the United States and provides banking services to the likes of crypto-friendly venture firms Sequoia and Andreessen Horowitz (a16z).
In a Mar. 8 financial update, it disclosed it sold $21 billion worth of its securities holdings for a $1.8 billion loss to shore up its balance sheet.
It also raised $500 million from venture firm General Atlantic and is seeking to raise another $1.75 billion in sales of its shares to a total of $2.25 billion.
It said the sale was made as it expects “continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.”
The release of the financials, however, plunged SVB’s stock price by 60% on Mar. 9 according to Google Finance, with investors concerned about the bank’s financial positon. It’s also seen a further 23% decline in after-hours trading.
SVB’s five-day chart shows the sharp one-day price decline from around $265 to trading at nearly $80 after hours on Mar. 9. Source: Google Finance
According to a Mar. 9 report from The Information, SVB chief, Greg Becker, told investors to “stay calm” and said the bank has “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble, that would be a challenge.”
In a stakeholder letter Becker reaffirmed the bank was “well-capitalized” and had “one of the lowest loan-to-deposit ratios of any bank of our size” and expected to reinvest the capital from the sale into “more asset-sensitive, short-term” securities.
Many have shared concerns regarding the potential knock-on effect if SVB’s clients were to instigate a bank run.
On Twitter, founders and tech executives however aired their support for the bank and urged others not to panic.
Mark Suster of Upfront Ventures tweeted on Mar. 9 that “more in the VC community need to speak out publicly to quell the panic about [SVB].”
3/ I believe the biggest risk to startups AND VCs (and to SVB) would be a mass panic. Classic “runs on the bank” hurt our entire system. People are making public jokes about this. It’s not a joke, this is serious stuff. Please treat it as such
— Mark Suster (@msuster) March 9, 2023
“I believe they could only fail if everybody panics so I would urge calm decisions based on facts,” he added.
Reacting to the news, Zak Kukoff, principal at VC firm General Catalyst said the bank had “consistently gone out of their way” for startups and said, “now is the right time to support them.”
I will say – SVB has consistently gone out of their way to do the right thing for startups and for the ecosystem. Now is the right time to support them
— Zak Kukoff (@zck) March 9, 2023
Related: Silvergate downfall sparks debate over whose fault it actually was
The uncertainty over SVB follows only a day after Silvergate said it will “wind down operations” and liquidate its crypto-friendly bank.
In a March 8 announcement, Silvergate Capital Corporation said the decision to shutter operations was “in light of recent industry and regulatory developments.”
Silvergate was one of the major banking partners for many crypto firms, but drew concerns about its solvency following an announcement it would delay the filing of its annual 10-K report by two weeks. The document typically provides an overview of a company’s financial situation.
