Fears have risen this week about the future of another US bank after it Silicon Valley Bank (SVB) will announce a major sale of assets and shares with the aim of raising additional capital.
However, some investors might worry that all is not well with this bank focused on tech startups and venture capital, especially considering the closure of crypto bank Silvergate just a day earlier. Silicon Valley Bank shares plunged more than 60%, wiping out some $80 billion of value from the bank’s stock.
SVB is one of the 20 largest banks in the United States and provides banking services to venture capital firms such as Sequoia and Andreessen Horowitz (a16z).
In a March 8 financial update, revealed that it sold $21 billion of its equity holdings for a loss of $1.8 billion to shore up its balance sheet.
It also raised $500 million from venture capital firm General Atlantic and is seeking to raise another $1.75 billion in sales of its shares, for a total of $2.25 billion.
He said that heThe sale was made because it expects “higher interest rates, pressured public and private markets, and high levels of cash consumption by our clients as they invest in their businesses.”
However, The release of financial data sent SVB’s share price falling 60% on March 9, according to Google Finance, amid investor concerns about the bank’s financial situation. It has also suffered a further 23% decline in post-closing trading.
According to a March 9 report in The Information, SVB boss Greg Becker told investors to “stay calm” and said the bank has “ample liquidity to support our clients, with one exception: If everyone tells each other that SVB is in trouble, that It would be a challenge.”
In a letter to shareholders, Becker reaffirmed that the bank was “well capitalized” with “one of the lowest loan-to-deposit ratios of any bank of our size” and expects to reinvest the proceeds from the sale in “more asset-sensitive and short-term” securities.
Many have raised concerns about the potential ripple effect if SVB clients instigated a mass withdrawal.
However, On Twitter, founders and tech executives expressed their support for the bank and urged others not to panic.
Mark Suster of Upfront Ventures tweeted on March 9 that “more members of the venture capital community need to speak out publicly to calm 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
3/ I think the biggest risk for startups AND VCs (and for SVB) would be a mass panic. The classic “bank runs” harm our entire system. People are making public jokes about this. This is not a joke, this is something serious. Please treat it as such.
“I think they could only fail if everyone panics, so I would urge calm decisions based on facts,” he added.
In reaction to the news, Zak Kukoff, a director at venture capital firm General Catalyst, said the bank had “consistently dined” for startups, adding that “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
SVB has consistently strived to do what is right for startups and the ecosystem. Now is the time to support them
The uncertainty about SVB comes just a day after Silvergate said it would “go out of business” and liquidate its cryptocurrency bank.
In a March 8 announcement, Silvergate Capital Corporation said the decision to close operations was “in light of recent industry and regulatory developments.”
Silvergate was one of the main banking partners of many crypto companies, but doubts about its solvency were raised after the announcement that it would delay the filing of its annual 10-K by two weeks. The document offers an overview of the financial situation of a company.
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