Silicon Valley Bank (SIVB), a major lender to the U.S. technology sector, is scrambling to reassure markets that it remains solvent as its share price falls 42% in premarket trading.
The latest plunge in the stock comes after Silicon Valley Bank’s share price dropped 60% on March 9 to $106.04 U.S. per share.
The swift decline in Silicon Valley Bank’s stock has pulled down the entire U.S. banking sector, wiping $80 billion U.S. in value from bank shares in a little more than 24 hours.
Stocks of the largest U.S. banks, including Bank of America (BAC) and Wells Fargo (WFC), each fell more than 6% on news of the troubles at Silicon Valley Bank.
The crisis stems from Silicon Valley Bank launching a $1.75 billion U.S. share sale to shore up its balance sheet.
The lender said it needed the proceeds to cover a $1.8 billion U.S. hole caused by the sale of a $21 billion U.S. loss-making bond portfolio that consisted mostly of U.S. Treasuries.
The portfolio was yielding an average 1.79% return, which is below the current 10-year Treasury yield of 3.9%.
Investors questioned whether the capital raise would be sufficient given the deteriorating state of many technology start-ups that Silicon Valley Bank counts as customers.
The result is that Silicon Valley Bank’s stock fell to its lowest level since 2016 and has fallen another 42% in extended overnight trading.
Silicon Valley Bank executives have reportedly been calling clients to reassure them that their money is safe.
Silicon Valley Bank is a major lender to early-stage technology firms and viewed as a major part of the venture capital ecosystem in California.
By some estimates, Silicon Valley Bank was the banking partner for nearly half of U.S. venture-backed technology companies that listed on stock markets in 2022.
Credit rating agency Moody's (MCO) downgraded the bank's long-term local currency bank deposits overnight, putting further pressure on Silicon Valley Bank’s share price.
The bank has said that funds raised from the stock sale will be re-invested in shorter-term debt and that the bank will double its long-term borrowing to $30 billion U.S.
