Silicon Valley Bank in Trouble After Silvergate; Banking Stocks See $80 Billion Wipeout

SVB Financial Group's shares tanked more than 60 percent on Thursday after the Silicon Valley Bank hurried down on a path to raise capital. This coupled with the Silvergate fiasco that unfolded earlier in the week resulted in a massive shell-off in banking shares, with about $80 billion in banks market cap being wiped out.

Capital Raise Bid

SVB's stock sell-off was triggered by the bank's move to launch a $1.75 billion share sale on Wednesday to shore up its balance sheet. Investors were spooked by the sudden move, resulting in a stock collapse that took it to the lowest level since 2016.

New York Stock Exchange
New York Stock Exchange Wikimedia Commons

This prompted the bank to reassure the investors and venture capital clients that their money was safe. According to Reuters, SVB's CEO Gregory Becker personally called clients to reassure that their investment in the Silicon Valley bank was safe. "While VC (venture capital) deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted," Becker told the news agency.

'Bank is Well Capitalized'

Becker reiterated that the bank is well capitalized. "We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients ... When we see a return to balance between venture investment and cash burn – we will be well positioned to accelerate growth and profitability," he said, noting SVB is "well capitalized," he said in a letter to the investors.

US stocks
A trader works at the New York Stock Exchange in New York, the United States, on Feb. 5, 2018. U.S. stocks closed sharply lower on Monday, with the Dow plummeting 4.60 percent, as the market took a heavy hit from panic sales. IANS

On Wednesday, embattled crypto-focused bank Silvergate Capital went belly up, following months-long flight of capital and erosion of deposit base in the aftermath of the FTX collapse at the end of 2022. The California-based bank said it was winding down operations and liquidating the assets, triggering a fresh stock sell-off that saw more than 40 percent plunge in the after hours.

Silvergate Troubles

"In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward," the bank said in a regulatory filing.

According to Bloomberg, the quick developments at two California banks raised questions if worse is yet to come.

Silvergate capital
Silvergate capital collapse silvergate

"Silicon Valley Bank is just the tip of the iceberg ... I'm not worried about the big guys but a lot of the small guys are going to take a terrible kicking ... Many of them will have to raise equity," said Christopher Whalen, chairman of Whalen Global Advisors, according to Bloomberg News.