Banking dominos continue to fall as Silicon Valley Bank is seized
https://www.kitco.com/news/2023-03-10/Banking-dominos-continue-to-fall-as-Silicon-Valley-Bank-is-seized.html
Kitco News) -
Breaking: As this story was being written, regulators announced that they have seized Silicon Valley Bank in the largest bank failure since the Great Recession.
The struggles for banks that service the crypto industry continue – and it's starting to spread to other industries – as SVB Financial (SIVB), the parent company of Silicon Valley Bank (SVB), has seen its stock price tumble 70% and is now rumored to be in talks to sell itself.
According to a report from CNBC, SVB Financial has hired advisors to explore a potential sale after attempts to raise capital have failed. Large financial institutions are reportedly looking into the purchase, but heavy outflows are making it difficult for prospective buyers to conduct a realistic assessment of the bank.
SVB is well-known in the tech industry as a home to startup and tech-focused venture capital firms, and it is also seen as one of the more crypto-friendly banks in the banking industry. Its difficulties mark the latest blow for the crypto industry which has struggled with its banking partners as of late.
On Wednesday, crypto-focused Silvergate Captial (NYSE: SI) announced that it would be winding down its operations and liquidating assets as it has been unable to recover from the heavy outflows and loss of revenue that resulted from the collapse in crypto valuations in 2022. At its peak back in November 2021, Silvergate’s stock price hit a high of $240, but as a result of the bank's challenges, SI was trading around $5 at the time of its announcement and currently trades under $3.
Investors are now starting to get a sense of dj vu as SIVB stock has fallen nearly 70% from a high of $347.21 on March 2 to its current price of $106.08. The second straight day of price declines and a 68% pre-market selloff on Friday resulted in SIVB trading being halted, pending the announcement that it was seeking a buyer. The shares did not open for trading with the rest of the market at 9:30 a.m. and are still halted at the time of writing.
The problems for SVB began when the California-based bank filed a surprise $1.8 billion loss following a deposit outflow and announced plans to raise $2.25 billion by selling common and preferred stock. According to the plan released Wednesday, SVB was looking to sell $1.25 billion in common stock and another $500 million of convertible preferred shares.
The bank also announced a deal with General Atlantic to sell $500 million of common stock in an agreement that was contingent on the closing of the other common stock offering, according to a securities filing.
It's not just SVB that now finds itself on the ropes as multiple banking institutions are scrambling for cash amid a collapse in their stock prices, harkening back to the great recession of 2008 for some.
First Republic Bank (NYSE: FRC) has seen its stock price crash from $123.18 on Monday to a low of $45.16 in trading on Friday before bouncing back above $80 at the time of writing, marking a 35% decline on the weekly chart.
And Signature Bank (NASDAQ: SBNY), which has become the crypto industry’s de facto go-to following the demise of Silvergate, is down 28% on the weekly chart and currently trades at $80.65 after rebounding from its early morning plunge to $61.62.
Looking beyond the crypto industry, large writedowns and outflows are starting to hit the go-to banks of the tech industry, sparking concerns for some that the growing contagion could soon spread to larger banking institutions and other sectors of the economy. Even JPMorgan (JPM) has been affected by the banking selloff, with stock trading down 7.6% on the week.
The KBW Nasdaq banking index (KBWB) has fallen 19.26% from a high of $56.74 on Monday to a low of $45.82 on Friday before recovering to $48.67, marking a weekly decline of 13.36%.
CNBC’s Jim Cramer helped provide a little more context to the developing situation, noting that it's tough for the market to handle banks that use Bitcoin and “pre-IPO” stocks as collateral, and the only two large banks that fit that description are Silvergate Capital and Silicon Valley Bank.