The financial future of Silicon Valley Bank is looking bleak as its stock price plummeted by 60 percent on Thursday, leaving investors and industry experts speculating about which financial institution could be next to face similar troubles.
Despite a recent strong surge in the stock markets following a weak performance in 2022, investors may have prematurely believed the turbulence was over. The hope of reduced interest rate hikes by the Fed due to falling inflation in the US has been overshadowed by the recent decline in the stock markets. The Silicon Valley Bank’s plummeting stock price by 60 percent on Thursday has become the primary source of uncertainty. As a result, the S&P-500 stock index, which comprises the 500 most important US companies, and the tech-heavy Nasdaq-100 both dropped almost 1.9 percent and 1.8 percent, respectively. Even the crypto market was not immune to the negative market sentiment, with Bitcoin dropping below the $20,000 mark and Ethereum briefly falling below $1,400.
Urgent Liquidation: Large Bond Portfolio up for Emergency Sale
Silicon Valley Bank’s share price drop was triggered by the revelation of the bank’s dire financial situation, which was announced on Wednesday when the bank disclosed its plans for a $1.75 billion capital increase to strengthen its balance sheet. According to investor documents, the bank is missing $1.8 billion from its balance sheet. The reason for this shortfall is due to the bank’s need to sell off a large bond portfolio, which had experienced an extremely unfavorable outcome. The increase in interest rates on US government bonds led to a decline in bond prices, and Silicon Valley Bank had initially entered the market at a much better price.
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To cope with the situation, the bank had to sell the bond portfolio and acquire the necessary funds as customers started withdrawing large amounts of money. Sources reveal that several large venture capital firms, including Founders Fund, owned by the controversial star investor Peter Thiel, recommended this course of action to their clients. In contrast, Silicon Valley Bank CEO Greg Becker urged clients to remain calm during a conference call on Thursday.
Which bank is next?
The sharp drop in Silicon Valley Bank’s stock price has triggered significant uncertainty in the financial markets. While the bank itself may not be particularly relevant, industry experts have expressed concerns about the possibility of another bank facing a similar fate. Market and data analytics firm Exante’s Jens Nordvig stated that “People are wondering which bank is next,” as quoted by Bloomberg. Christopher Whalen of Whalen Global Advisors, another market strategist, echoed Nordvig’s sentiment, saying that while he wasn’t concerned about the big banks, smaller financial institutions could face more significant challenges and may need to raise capital.
The days leading up to the Silicon Valley Bank‘s crash saw another U.S. bank, Silvergate, making headlines in financial media. Silvergate, considered the “house bank” of the crypto industry, was facing significant difficulties and had become a topic of concern. Eventually, it was announced on Thursday that the bank would be liquidated.
