In this photo illustration of a TradingView stock market chart of SVB Financial Group seen displayed on a smartphone with the SVB Financial Group logo in the background.
Igor Golovnyov | Light Rocket | Getty Images
Shares of SVB Financial Group, better known as Silicon Valley Bank, fell for a second day on Friday and weighed down the entire banking sector again on concern that more banks could incur huge losses in their bond portfolios.
SVB CEO Greg Baker held a phone call with clients Thursday night to assuage their concerns after 60% defaulted in the stock, CNBC has learned. Shares fell another 45% in pre-market trading on Friday.
The SPDR S&P Regional Banking Index fell 1.5% on Friday after falling 8% on Thursday. The Financial Select SPDR fund is down 1.25% after falling 4% on Thursday. Signature Bank, which is known to cater to the cryptocurrency sector, is down 4% in pre-market trading after stumbling 12% on Thursday. First Republic Bank stock was down 3% after falling 17% Thursday.
Major banks were also under pressure, with JPMorgan Chase losing another 1% early Friday after falling 5% on Thursday.
“The current pressures facing SIB are very specific and should not be viewed as reading other banks,” analysts Manan Josalia and Betsy Grasik of Morgan Stanley wrote in a note on Friday.
Concern rose among founders and venture capital investors earlier this week after a Silicon Valley bank surprised the market by announcing late Wednesday that it needed to raise $2.25 billion in shares. The bank said it was forced to sell all of its available-for-sale bonds at a loss of $1.8 billion as its junior clients withdrew deposits.
That news, which came on the heels of the collapse of cryptocurrency-focused Bank Silvergate, sparked another wave of deposit withdrawals on Thursday, as venture capitalists instructed their portfolio companies to move funds, according to people familiar with the matter.
SVB clients said they had not gained confidence after Baker urged them to “stay calm” on a Thursday afternoon call, and the stock’s collapse continued unabated, reaching 60% by the end of trading.
SVB said in a letter from Baker on Wednesday that it had sold “all” of its available-for-sale securities, which consist mostly of US Treasury bills..
The bank also previously announced that there are more than $90 billion in held-to-maturity securities, which won’t necessarily incur losses unless you have to sell them before they mature to cover runaway deposits. Since the Federal Reserve is constantly raising interest rates, it is lowering the value of Treasury securities. For example, the iShares 20+ Treasury Bond ETF, which consists of longer-maturity Treasury bonds, has fallen 24% in the last 12 months.
Investors are also concerned about the lack of support from the Silicon Valley bank’s funding base for tech startups, an area hit hard by a stock market slowdown and price hikes. Peter Thiel’s Founders Fund and other large venture capital firms have asked their companies to withdraw their money from SVB, Bloomberg News reported.
“Low venture capital funding activity and high liquidity burn rate are particular stressors for SIVB clients, resulting in lower total client funds and deposits on SIVB’s balance sheet,” Morgan Stanley analysts write. “However, we have always believed that SIVB had more than enough liquidity to fund a venture capital client’s cash-burn related deposit outflows.”
SVB had a market capitalization of $16.8 billion to end last week. On Thursday, the bank was valued at $6.3 billion with that value expected to fall further when trading begins on Friday.
This is a developing story. Check back for updates.
Correction: The Financial Select SPDR fund fell 4% on Thursday. An earlier version went wrong today.
