The SVB Financial Group (NASDAQ: SIVB) share price was trading down 49.4% premarket, extending yesterday’s 60.41% decline. The crash occurred after the bank announced a $1.75 billion capital raise to plug a hole created by selling a $21 billion loss-making bond portfolio.
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The bank mainly serves clients in the startup sector, including Venture Capital (VC) firms that provide funding to startups. SVB has faced a challenging operating environment this year as VC firms lowered their funding to startups while startups continue burning through their cash reserves.
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The situation has been worsened by the Fed’s recent hawkish rhetoric that has investors preparing for more rate hikes at a time when interest rates are already relatively high. Unfortunately, SVB’s clients rely on borrowing and fundraising to remain in business since many are not yet generating revenues.
The bank’s problems were escalated by fears that customers might lose their deposits, which triggered a run on the bank. SVB shares opened lower amid fears that the bank might go under along with customer deposits.
Some startups have started pulling their money out of SVB due to the abovementioned fears. It is unclear what will happen to Silicon Valley Bank, but a bank run is a sure way to drive SVB into the ground since it is unlikely that the bank has enough funds to pay out all customer deposits.
Meanwhile, investors are dumping SVB shares, and some funds might be selling short the shares to profit from the decline. Therefore, SVB is stuck between a rock and a hard place as its stock crashes, and customers rush to withdraw their deposits.
Silicon Valley Bank’s CEO, Gregory Becker, has been urging its VC clients, its primary depositors, to remain calm since everything is fine and they will not lose their deposits. However, nobody wants to be left holding the bag if the bank goes under.
Investors should keep a close eye on SVB shares in the coming day, including any announcements by the bank.
*This is not investment advice.
SVB share price.
The SVB share price plunged 60.41% yesterday and was down a further 49.42% to trade at $52.41 during premarket trading.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.