Silicon Valley Bank shares crash by 60% one day after crypto bank Silvergate shut down

Updated: 10 March 2023

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Fear and concern have spread through the financial industry after the recent closure of the popular crypto bank, Silvergate. To make matters worse, investors are now worried about the future of another US bank, known as the Silicon Valley Bank, which is among the top 20 largest banks in the country. Recently, SVB announced a significant sale of its stocks and assets, seeking to raise additional capital.

However, many believe that this move is a reason to be concerned and that the VC-focused bank and tech startup is not doing well. Especially after its shares collapsed by over 60% only a day after Silvergate’s closure, effectively wiping nearly $80 billion in value.

SVB’s efforts to raise capital caused further concern among investors

Apart from being among the largest US banks, SVB is also known for being a banking service provider to crypto-friendly venture companies Andreessen Horowitz and Sequoia. Furthermore, the bank published a financial update on Wednesday, March 8th, revealing the sale of $21 billion worth of securities holdings for a $1.8 billion loss, intended to shore up the bank’s balance sheet.

In addition to that, the bank also turned to venture firm General Atlantic to raise another $500 million, with plans to raise another $1.75 billion through the sale of shares. This suggests that its goal is to raise $2.25 billion in total. It explained that the sale was made because it expects to see,

Continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.

The financial report’s release had a negative effect, however, as it pushed the bank’s stock price down by 60% on the following day, Thursday, March 9th. Data from Google Finance revealed the drop, while investors seem to be highly concerned regarding the bank’s financial position. In the after-hours trading, the stock dropped by another 23%

Investors are urged not to panic

The bank’s chief, Greg Becker, reassured investors, telling them to stay calm. He explained the move by saying that the bank still has ample liquidity and that it can support all of its clients unless they continue to tell one another that the bank is in trouble. In his letter to the stakeholders, he insisted that the bank remains well-capitalized, featuring one of the lowest loan-to-deposit ratios among the banks of a similar size. Others on Twitter also urged investors not to panic while airing their support to the bank.

One example is Mark Suster of Upfront Ventures, who said that the bank will only fail if everyone panics, and if the investors instigate a massive bank run.

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

Zak Kukoff, General Catalyst’s principal, said that the bank had gone out of its way for startups many times and that this is the time to return support.

https://twitter.com/zck/status/1633950352520388608

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