What’s going on with Silicon Valley Bank?

10 Mar 2023

Image: © Sundry Photography/Stock.adobe.com

The technology-focused bank recently sold shares to help stabilise its balance sheet, causing panic among investors.

Silicon Valley Bank (SVB) has become the latest in the financial spiral spotlight, as its share price has tumbled amid concerns about the bank’s stability.

The price of SVB share plummeted by 60pc yesterday (9 March), as investors moved to withdraw their deposits.

This drop came after the technology-focused bank announced a $1.75bn share sale to help stabilise its balance sheet.

Amid the stock price drop, SVB CEO Greg Becker has been reassuring VC clients that their money is safe, two people familiar with the matter told Reuters.

The financial uncertainty of SVB comes shortly after crypto-focused Silvergate Capital announced plans to wind down operations and liquidate its bank, due to its recent wave of financial issues.

Why did Silicon Valley Bank start selling shares?

SVB announced the share sale as part of a plan to strengthen its financial position and plug a hole in its finances, according to a message to stakeholders.

The bank made the decision to sell $21bn of its available-for-sale (AFS) securities in order to reinvest the funds into “a more asset-sensitive, short-term AFS portfolio”. However, SVB said the sale would lead to an after tax loss of $1.8bn for the first quarter of 2023.

The $21bn in AFS securities was primarily US treasury and agency securities and was yielding an average return of 1.79pc. This is less than the current 10-year treasury yield of roughly 3.9pc, Reuters reports.

SVB said it also received a commitment from General Atlantic to invest $500m “on the same economic terms as our common offering”, raising the total capital boost from its share sale to $2.25bn.

“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 as they invest in their businesses,” SVB said.

Why are investors pulling out?

While SVB is trying to assure investors that the share sale is designed to boost its financial flexibility, it has raised concerns about the financial health of the bank, causing a wave of stockholders to pull out.

Peter Thiel’s Founders Fund is reportedly advising companies to pull out from SVB due to concerns about its stability, according to sources speaking with Bloomberg.

Sources told Reuters that other start-ups are advising their founders to pull their money from the bank as a precautionary measure.

Silicon Valley Bank has invested hundreds of millions into Irish companies since it first established a presence here in 2012.

The bank announced plans to deploy $100m to fast-growing Irish technology, life sciences, clean-tech, private equity and venture capital businesses over five years, one week after it opened a branch in London.

In 2019, The Ireland Strategic Investment Fund and SVB announced an additional $300m in loans and credit facilities, to be delivered to Irish technology and life sciences businesses over a five year period.

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Leigh Mc Gowran is a journalist with Silicon Republic