SANTA CLARA, Calif. — Silicon Valley Bank collapsed Friday in the second largest bank collapse in U.S. history after a rush for deposits doomed the tech-focused lender’s plans to raise fresh capital.
The Federal Deposit Insurance Corp. said she took control of the bank through a newly formed entity called the Deposit Insurance National Bank of Santa Clara. All of the bank’s deposits have been transferred to the new bank, the regulator said.
Insured depositors will have access to their funds through Monday morning, the FDIC said. Depositors with funds in excess of insurance limits will receive receivership certificates for their uninsured balances, meaning companies with large deposits that are stuck at the bank are unlikely to be getting their money out anytime soon.
The bank is the 16th largest in the US, with assets of about $209 billion as of December 31, according to the Federal Reserve. It is by far the largest bank to fail since the near-collapse of the financial system in 2008, following the crisis-era collapse of Washington Mutual Inc.
The bank’s parent company, SVB Financial Group, was on the lookout for a buyer after scrapping a proposed $2.25 billion share sale on Friday morning. The regulators didn’t want to wait. The California Department of Financial Protection and Innovation shut down the bank within hours on Friday and placed it under FDIC control.
Customers attempted to withdraw $42 billion on Thursday alone — about a quarter of the bank’s total deposits — the California regulator said on Friday. The flood of withdrawals wrecked the bank’s finances; As of Thursday’s close, the company had negative cash on hand of nearly $1 billion and was unable to cover its outgoing payments to the Fed, the filing said.
The bank was in solid financial shape on Wednesday, the regulator said. A day later it was insolvent.
SVB’s problems have affected a large part of the industry. Investors dumped the stocks of banks large and small on Thursday, slashing the value of the four largest US banks alone by $52 billion. Megabanks rallied on Friday, but many of their smaller peers continued to plummet. Several were stopped due to volatility.
Investors worry about banks with a similar profile to the SVB. Shares in San Francisco-based First Republic Bank, which caters to businesses and wealthy individuals, are down about 30% since Wednesday. “First Republic’s deposit base is strong,” the bank said on Friday.
PacWest Bancorp shares are down 54% over the past two days. More than two-thirds of its loan portfolio is tied to real estate, with a significant portion lent to venture capital firms.
SVB primarily targeted the siled ecosystem of startups and the investors who fund them. Its deposits boomed alongside the tech industry, soaring 86% to $189 billion in 2021 and peaking a quarter later at $198 billion. The bank invested large amounts of deposits in US Treasuries and other government-sponsored debt instruments.
Tech plummeted after the Federal Reserve began raising interest rates to curb inflation last year. As a result, startups drained their deposits from SVB faster than the bank expected. And new investments stalled, meaning no fresh money came into the bank.
Meanwhile, rising interest rates hurt the value of SVB’s massive bond portfolio. The bank needed fresh capital.
SVB hired Goldman Sachs Group Inc. earlier this week to conduct a private share sale, which a person familiar with the offering said plans to announce after closing so as not to scare investors.
In response, Moody’s Investors Service told SVB that it was planning a credit downgrade for the bank, the person said. Typically, Moody’s gives issuers 24-hour notice of a credit rating change.
SVB CEO Greg Becker had told customers the bank was on solid financial footing.
Photo: Lauren Justice/Bloomberg News
Bankers and SVB executives feared a downgrade would hurt the company more than a stock sale, said the person close to the deal. They scrambled to enlist private equity firm General Atlantic to anchor the deal with a $500 million commitment and announced the proposed sale after the market close on Wednesday. Later that evening, Moody’s downgraded the company.
SVB shares fell sharply after the market opened on Thursday. The sharp movement in the stock alarmed customers, who began withdrawing their money from the bank to avoid suffering losses in case of failure.
Chief Executive Greg Becker tried to reassure customers when they called on Thursday by telling them the bank was on solid financial footing despite the losses. It did not work. Venture capital investors advised startups to pull their money out of the bank to avoid losses on deposits that exceed the FDIC’s $250,000 insurance limit. The bank had more than $151 billion in deposits that exceeded the FDIC limit at the end of 2022.
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Competing banks were inundated with calls from potential customers wanting to move their balances.
Alison Greenberg, co-founder of Los Angeles-based maternity care startup Ruth Health, was in a meeting Thursday when she received a frantic email from a seed investor.
“It was basically like, ‘Things are imploding at SVB, it’s urgent that you get your money out,'” Ms Greenberg said.
Audrey Wu, a co-founder of Ruth Health, began making transfers of various denominations from the company’s account, hoping not to disrupt automated systems that would flag and potentially delay the transactions.
As she prepared the final transfer from the account, SVB’s website crashed and she couldn’t log back in, she said.
SVB shares fell more than 60% on Thursday to $106.04.
Goldman bankers arranged for SVB to sell shares at $95 a share Thursday afternoon, according to people familiar with the offer. As stocks continued to fall and more customers withdrew their deposits from the bank, that deal fell through, these people said.
Treasury Secretary Janet Yellen told the House Ways and Means Committee on Friday that the US could face “economic and financial disaster” if Congress doesn’t raise or suspend the federal borrowing limit. Photo: Al Drago/Bloomberg
Some supporters attempted to rally support for the bank. Fintech investor Restive Ventures said in an email early Friday morning that it was keeping its money with SVB and encouraging portfolio companies to do the same. “Shifting corporate finance online under time pressure is a recipe for disaster,” the email reads.
The share sale was canceled a few hours later. The bank urged employees to “work from home today and until further notice,” according to a copy of the email seen by The Wall Street Journal.
By 9 a.m. on the West Coast, regulators had seized the bank.
More than two dozen people, some posing as customers, arrived at the bank’s Santa Clara headquarters Friday morning. An FDIC press release announcing the bank’s closure was taped to a locked door.
“We’re in a lot of trouble right now,” said one customer over the phone. “We shouldn’t have put all our eggs in one basket,” he added.
Jack Singh, an advisor at Avahi Inc., a startup consulting partner for Amazon Web Services, the cloud computing arm of Amazon.com Inc., said the firm had begun trying to transfer funds from SVB to an account at JPMorgan Chase & Co. to send . Thursday. As of Friday morning, some of those transfers hadn’t gone through. He showed up at the bank’s headquarters to see if he could withdraw even $40,000 or $50,000.
Mr Singh said he had a payroll to do. “There are people who rely on the money that’s in the bank,” he said, adding, “It’s Friday and everything is at a standstill. So we will definitely be getting calls from staff.”
His 6-year-old son overheard a conversation he was having with an accountant about the situation, Mr Singh said. The boy pulled out his wallet and tried to give his father a few dollars.
—Ben Foldy and Dana Cimilluca contributed to this article.
Write to Rachel Louise Ensign at [email protected], Corrie Driebusch at [email protected] and Meghan Bobrowsky at [email protected]
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