Topline
Shares of Silicon Valley Bank Financial Group plunged further in pre-market Friday, after it took measures to shore up its financial position Thursday, prompting some venture capital funds to urge their portfolio firms to withdraw funds—and raising fears of a bank run.
Greg Becker, chief executive officer of Silicon Valley Bank, participates in a panel discussion … [+]
Key Facts
Shares of SVB Financial Group fell more than 64% by 8 a.m. ET Friday after cratering by more than 60% on Thursday, following an announcement that the lender lost $1.8 billion after selling securities worth $21 billion to hedge against a challenging market.
According to Bloomberg, companies backed by VC firm Founders Fund were urged by the company to remove their money from the bank, telling them that there was “no downside” to a withdrawal.
As a result, some founders have already moved their funds to other lenders like First Republic and Brex, Semafor reported.
Other customers, however, faced problems while trying to move their funds out of the bank due to issues with SVB’s website on Thursday that prevented logins and withdrawals, TechCrunch reported.
In a conference call on Thursday, the bank’s CEO Greg Becker urged clients to “stay calm” and assured them that the bank has “ample liquidity” except for the scenario where “everyone is telling each other SVB is in trouble,” the Information reported.
Crucial Quote
Billionaire and activist investor Bill Ackman warned that the failure of SVB could cause a domino effect that will impact other financial institutions as he urged the government to step in and keep the bank afloat if the need arises. He tweeted: “The failure of [SVB Financial] could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.”
Key Background
SVB Financial’s shares were hit hard on Thursday after it announced it had sold around $21 billion worth of securities from its portfolio at a loss of $1.8 billion. The company also announced it is seeking to raise around $2.25 billion by selling a combination of common and preferred stock. The company said it was undertaking these steps as challenging market conditions and high cash burn among its clients led to “lower deposits than forecasted.” Shares of other major financial institutions and the overall market were also hit by the selloff with the four biggest U.S. banks losing more than $52 billion from their valuation. The tech-heavy Nasdaq index ended the day more than 2% in the red while the S&P 500 and Dow Jones indexes were down 1.85% and 1.66%, respectively.
Further Reading
Peter Thiel’s Founders Fund Advises Companies to Withdraw Money From SVB (Bloomberg)
Silicon Valley Bank CEO Tells VC Clients to ‘Stay Calm’ (The Information)
Source: https://www.forbes.com/sites/siladityaray/2023/03/10/silicon-valley-bank-shares-drop-64-in-pre-market-as-vc-funds-tell-firms-to-withdraw-funds/