Turmoil at Silicon Valley Bank sparks market panic as four largest US banks lose a whopping $52 BILLION in valuation and Dow falls 540 points
- The S&P 500 bank index fell more than 6% on Thursday, the sharpest drop in two years
- After the turbulence at SVB Financial Group, investors fled the financial sector
- Markets also fell broader, with the Dow losing 540 points
Sharp losses in bank stocks caused Wall Street’s main indices to fall on Thursday as the turmoil at Silicon Valley Bank’s parent company sparked investor fears over the stability of the financial sector.
The S&P 500 banking index plunged more than 6% in its biggest single-day loss in over two years after SVB Financial Group announced a massive capital increase to offset a $1.8 billion loss on asset sales.
Share prices of the four largest U.S. banks — JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup — plummeted between 4% and 6%, erasing $52.3 billion from their collective market cap on the day.
Stocks fell across Wall Street, with the Dow Jones Industrial Average falling 543 points, or 1.66%. The S&P 500 lost 1.85% and the Nasdaq Composite lost 2.05%.
Shares in SVB Financial, which owns Silicon Valley Bank, plunged more than 60% after the company announced it would sell new shares to offset losses from sales of government bonds.
The sudden decline in Silicon Bank’s stock price is visible in this striking NASDAQ chart
Sharp losses in bank stocks caused Wall Street’s main indexes to fall on Thursday as the turmoil at Silicon Valley Bank’s parent company fueled investor fears
SVB is struggling with cash burn due to falling deposits from tech startups struggling with a drought in venture capital funding.
The company’s assets and deposits had nearly doubled in 2021, and the bank invested much of those funds in U.S. Treasuries and other government bonds.
But as rising interest rates hit the tech startups that the bank mainly serves, falling deposits forced SVB to sell bond holdings – which, meanwhile, had fallen in market value due to the rising interest rate environment.
Silicon Valley Bank CEO Greg Becker is pictured ahead of the turmoil that has gripped his firm
The turmoil at SVP sparked a selloff among peers with similar exposure, with San Francisco-based First Republic plummeting 16.52% after hitting its lowest level since October 2020.
Drops in the big four banks, although smaller by percentage, dragged markets lower, with JPMorgan’s 5.4% loss weighing more than any other stock in the S&P 500.
“The Silicon Valley pay rise has got everyone on edge about how much capital people have and what the deposits are doing. Many institutional investors aren’t comfortable owning certain banks right now,” said RJ Grant, trading director at Keefe, Bruyette & Wald in New York.
“It just freaks people out because historically Silicon Valley has been a very strong, well-run bank. When they’re struggling, people wonder what about other banks that are of lower quality and don’t have the reputation that Silicon Valley Bank has.’
Greg Becker, chief executive officer of SVB, said customer cash burn increased in February.
As a major lender to early-stage companies, SVB is a banking partner to nearly half of the US venture-backed technology and healthcare companies listing in 2022.
“While VC (venture capital) deployment met our expectations, customer cash burn remained high and continued to increase in February, resulting in lower than forecast deposits,” Becker said in a letter to investors.
The funding winter comes as a result of the Federal Reserve’s relentless hike in the cost of borrowing over the past year, as well as elevated inflation.
At one point during trading on Thursday, SVB shares fell nearly 63% to hit their lowest level since August 2016 after the lender trimmed its 2023 guidance and initiated the share sale.
The SVB turmoil raised concerns among investors about broader risks in the sector.
Investors also struggled with the decline of cryptocurrency-focused lender Silvergate Capital, which fell 22% after it announced late Thursday it would cease operations and voluntarily liquidate after suffering losses following the collapse of crypto exchange FTX .
Shares in Silvergate competitor Signature Bank fell 9.4%.