SVB Financial became the first FDIC-insured financial institution to fail this year, regulators announced midday Friday. The California Department of Financial Protection and Innovation closed Silicon Valley Bank and appointed the Federal Deposit Insurance Corporation as receiver.
"As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits," the agency announced in a statement. "At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers."
The financial crisis deepened Friday as shares plummeting before trade was halted early in the morning. CNBC reported the company sought a buyer after being unable to raise capital in a Thursday offering. However, deposit outflows are outpacing the sales process as customers race to withdraw funds, making it difficult for buyers to value the bank and making any potential deal less attractive.
The parent company of Silicon Valley Bank sent shock waves through the financial industry with a desperate billion to raise $2.25 billion to stem its liquidity problems. SIVB stock collapsed more than 60% during regular trade on Thursday, then another 63% in Friday's premarket session before trading was halted.
At the House Ways and Means Committee hearing Friday, Treasury Secretary Janet Yellen said she's watching the Silicon Valley Bank situation. "There are recent developments that I'm monitoring very carefully," Yellen testified. "When banks experience financial losses, it is and should be a matter of concern."
Santa Clara, Calif.-based Silicon Valley Bank has been the go-to lender for many tech startups. However, higher interest rates caused a recent decline in venture capital investments, and clients burned cash at a higher clip. That resulted in shrinking deposits.
Founders Fund, the venture capital fund cofounded by tech billionaire Peter Thiel, on Thursday advised companies to withdraw holdings from SVB, due to concerns about financial stability, Bloomberg reported. Stability concerns reverberated across the banking sector, hitting banks base in the Western U.S. particularly hard.
SVB Capital Raise Attempt
To salve its cash issues, SVB Financial sold $21 billion in fixed-income investments for a $1.8 billion loss. Wednesday, SVB announced a set of $2.25 billion stock offerings in an attempt to restructure its balance sheet.
The sale includes $1.25 billion in common stock and a $500 million mandatory convertible sale. Growth equity investor General Atlantic agreed to purchase $500 million of common stock in a private transaction.
A tweet from Bill Ackman, CEO of Pershing Square Holdings said, "After what the Feds did to @jpmorgan after it bailed out Bear Stearns, I don't see another bank stepping in to help." He also said, "The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall. That is why gov't intervention should be considered."
Futures: FDIC Ready For Monday After SVB Collapse?
Silicon Valley Bank Halted As Selloff Accelerates
The Silicon Valley Bank news reverberated throughout the financial sector. The declines started to ease Friday following Yellen's comments, but some banks recoiled after the FDIC announcement. PacWest Bancorp careened 25% Thursday, then dropped 37.9% Friday. That's off morning lows but sliding again after the FDIC announcement. First Republic Bank tumbled 14.8%, but that was far off lows.
Charles Schwab closed roughly 13% lower after Thursday's news, then dropped 11.75% Friday.
US Bancorp slid 7% on Thursday, and slid 4% on Friday. Bank of America swooned 6.2% Thursday, edging down 0.85% Friday after briefly turning positive. JPMorgan carved a 5.4% loss on Thursday, but rose 2.58% Friday after an early dip at market open.
SIVB stock had a massive rally off 2020 lows, and peaking in November 2021. It had since declined 65% through Wednesday, before Thursday's collapse.
SVB recorded six straight quarterly losses as economic conditions turned unfavorable.
SIVB stock plummeted 60% Thursday to 106.04 following the restructuring news. Shares continued to fall, down another 65% before premarket trading was halted early Friday.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
