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SVB Financial Group became the biggest bank failure since the 2008 financial crisis, with a sudden collapse that rocked global markets and stranded billions of dollars belonging to companies and investors.
The bankruptcy of Silicon Valley Bank, SVB, which was intervened after its shares plummeted in two consecutive days due to serious financial problems, affected the entire sector inside and outside the United States and aroused the fear of some investors that it constituted the prologue of a new crisis.
Shares of SVB, aimed at technology and science start-ups, plunged 60% on Thursday and another 68% on Friday, before trading was suspended.
The California Department of Financial Protection and Innovation, FDIC, where the bank’s headquarters are located, took control of the company, alleging lack of liquidity and insolvency, with the aim of protecting deposits insured by the Government.
Investor concern rises
The bank, which had assets of approximately $209 billion and deposits worth approximately $175.4 billion as of December 31, 2022, is the largest bank failure since the 2008 crisis and one of the largest in the United States history.
Eighty-nine percent of the bank’s $175 billion in deposits were uninsured at the end of 2022, according to the FDIC, and their fate is yet to be determined. Silicon Valley Bank’s main office and all branches will reopen on March 13 and all insured depositors will have full access to their insured deposits no later than Monday morning, according to the FDIC.
Companies including video game maker Roblox Corp and streaming device maker Roku Inc said they had hundreds of millions of deposits at the bank. Roku said its deposits in SVB were largely uninsured, sending its shares down 10% in prolonged trading.
Dean Nelson, CEO of Cato Digital, was outside the SVB Santa Clara headquarters, hoping to get answers. Nelson claimed that he was concerned about the company’s ability to pay employees and break even.
“Access to cash is the biggest problem for most companies here. If you’re a startup, cash is king. Cash and workflow, being able to runway is critical.” he assured.
The sudden collapse of the entity based in Santa Clara (California, USA) has provoked mixed reactions among investors.
The origin of bankruptcy
There are those who see what happened as the warning of a new financial crisis and, on the other, those who attribute their debacle to internal problems of the company and that will not spread to the sector or to the rest of the economy.
“Rises in interest rates are slowing the economy and that is weighing on the US economy,” said economist Lauren Goodwin of New York Life Investments.
SVB had invested the excess liquidity achieved during the Covid-19 crisis in long-term Treasury Bonds, assets that have been affected by the rise in interest rates sponsored by the Federal Reserve.
The bank announced the sale of about 21,000 million dollars in assets from its portfolio (bonds), in which it lost 1,800 million and then proposed a plan to execute a capital increase of about 2,250 million dollars to compensate said loss.
SVB’s objective, according to various specialized media, was to increase its assets to “take advantage of the potential for rising interest rates in the short term, partially block financing costs, better protect net interest income (NII) and the net interest margin (NIM) and improve profitability”.
But adding to the drop caused by the sale was the fact that several venture capital and investment funds recommended emerging companies to withdraw their capital from the bank, increasing pressure on the entity.
Several financial institutions were dragged down, such as Signature Bank, First Republic Bank or Western Alliance, and their listing on the stock market was suspended due to the falls. US banks have lost more than $100 billion in market value in the past two days, and European banks around another $50 billion, according to a Reuters calculation.
With EFE and Reuters
