Silicon Valley Bank collapse: What happened and what stocks are affected?
The news about the collapse of Silicon Valley Bank (SIVB), which had been the 16th largest bank in the US, has sent shock waves throughout the world’s economy. What does it mean for financial markets?
In this article, we take a look at the latest Silicon Valley Bank news, and try to explain what the institution did, why it collapsed, and what are the companies affected.
What is Silicon Valley Bank (SBV)?
Silicon Valley Bank was set up in 1983 by former Bank of America (BAC) managers Bill Biggerstaff and Robert Medearis and was based in San Jose, California.
The company was designed, as its name suggested, to serve the needs of tech companies at a time when the market for computers was still, if not in its infancy, then in a fairly early part of its overall development.
The organisation grew and grew, opening offices across the US. During the 1990s, it moved its headquarters to the Californian city of Santa Clara, and was able to profit from the dot-com bubble, as it became noted for its willingness to lend money to start-up companies that were not yet turning a profit.
Although the bubble burst, sending the Silicon Valley Bank stock price dropping by around half, by 2002, under the leadership of CEO Ken Wilcox, it entered the private banking sphere and two years later it opened offices in the UK, India, Israel and China.
By 2015, the bank said that it funded around 65% of all tech start-ups in the US and, despite the arrest and subsequent jailing of former vice president Mounir Gad on insider trading charges, the company looked like it was maintaining its position as the main place for new businesses in the tech sector to do their banking.
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Silicon Valley Bank collapse explained
Things started to go wrong in 2022. While the previous few years had been pretty good for the tech industry as people relied more on online companies during Covid-19 lockdowns, the companies who had been banking with SVB had seen their deposits invested in bonds.
Normally this would be seen as a pretty safe and reliable investment, but interest rates rose in 2022 to combat the worldwide cost of living crisis. This meant that the overall value of the bonds went down.
In turn, this caused some businesses to worry about the overall security of their deposits with SVB, which led to them withdrawing their money. As a result of this, SVB had to try and sell its bonds so it would have enough money to satisfy the needs of the companies and people who had invested in it, which was announced on 8 March 2022.
This news, in turn, caused more organisations to try to withdraw their funds. Just two days after the bank, which had been worth $200bn, announced it would be trying to sell its bonds, SVB collapsed. Banking regulators in California closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver. In a statement, the FDIC said:
Following the news, the SVBI share price crashed by 60.41% on 10 March, before the trading halt was announced on the NASDAQ stock exchange as investors await further developments.
Stocks affected by the SBV collapse
The collapse of SVB has had an impact on a variety of companies including the wider banking sector and SBV clients.
Companies that banked with SBV
The stocks affected included streaming firm Roku (ROKU), which saw its stock price drop 3% over the weekend amid claims that SVB held more than a quarter of the company’s assets, arts e-commerce site Etsy (ETSY), whose price fell by more than 6% across 13 March after its merchants were told there may be a delay in accessing their deposits.
Roku (ROKU) live stock price
The AI semiconductor business Ambarella (AMBA), saw its share price fall by around 6% from 10 to 13 March as it had a reported $17m worth of deposits in SVB.
The collapse of SVB has had an impact on a variety of companies which banked with it. For instance, Lindsay Michaelides, the CEO of Strongsuit, a company designed to support working parents, tweeted that her business’s financial future was at risk following what happened to SVB.
Hi, I’m Lindsey. A bit about me:
— Lindsey Michaelides (@lcmichaelides) March 11, 2023
- Ohio mother of 4
- I employ a team of 15 as a start-up founder & CEO of Strongsuit
- drive a used Honda Odessey
- husband works in manufacturing
- The financial future of my company, team and family are at risk w/ the collapse of SVB (1/23)
Garry Tan of Y Combinator said that the collapse could represent an “extinction level event” for newer and smaller tech companies.
Banking sector
The banking sector was also hit following the news about SVB. A number of regional bank stocks were down over the wake of the collapse, with Western Alliance Bancorp’s stock price dropping more than 85% from an intraday high of $55.96 on 10 March to an intraday low of $7.56 on 13 March. At the time of writing, the stock is trading 48% down on the day.
Meanwhile, First Republic Bank (FRC), dropped from an intraday high of $95.44 on 10 March to an intraday low of $17.55 on 13 March, an over 80% slump.
Bigger banks were also hit, yet on a smaller scale, with Wells Fargo (WFC) and Bank of America (BAC) seeing 4% and 2% falls in their share prices respectively on 13 March.
Bank of America (BAC) live stock price
The matter was not restricted to American markets, either, as the FTSE 100 (UK100) was down, with banking giants Standard Chartered (STAN), which dropped over 6% on 13 March, and Barclays (BARC), which fell over 5%. Meanwhile, investors appeared to be looking to move their money into so-called safe haven assets, with the price of gold rising 2.2% following SVB’s collapse.
Gold live price
Impact on financial sector
Rupert Thompson, the Chief Economist at Kingswood, said that, while the collapse of SVB was the largest bank collapse since the global financial crisis of 2008, things were somewhat different. He explained: “Silicon Valley Bank was very much focused on tech start-ups and ran into problems as the rise in interest rates had led to deposit withdrawals and was forcing it to sell its government bond holdings at a loss.”
It is possible that interest rates, which have risen significantly in the US, could be calmed down if there are fears that other, larger, banks could suffer the same fate as SVB for similar reasons.
Likewise, traders could see the overall stock prices of both banks and tech companies slow in growth or even fall, at least in the short-term. There may also be implications for the US dollar, with the US Dollar Index (DXY) dropping between 10 and 13 March.
Will there be a bailout?
The future of the company’s overseas subsidiaries is also somewhat in question at the time of writing although on 13 March 2023, its British arm was purchased by HSBC for £1.
On 12 March, US Treasury Secretary Janet Yellen ruled out a government bailout, telling CBS News:
Nevertheless, the US Treasury, Federal Reserve (Fed) and the FDIC issued a joint statement, seeking to protect creditors of both the Silicon Valley Bank and the Signature Bank.
In a joint statement, Yellen, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin Gruenberg said:
Note that this article does not constitute trading advice.
FAQs
How did Silicon Valley bank collapse?
Silicon Valley Bank collapsed as it experienced a run after announcing that it was in the process of selling bonds it held.
Why did Silicon Valley Bank collapse?
Silicon Valley Bank collapsed because it had to sell the bonds it held in order to support customers who wanted to withdraw their deposits after the news that, following a series of interest rate hikes, the bonds were not worth as much as they had been.
Is Silicon Valley Bank publicly traded?
Silicon Valley Bank’s parent company, SVB Financial Group, is publicly traded under the ticker handle SIVB.
Who owns Silicon Valley Bank?
Silicon Valley Bank was owned by SVB Financial Group, although at the time of writing its various arms were potentially being sold off, with HSBC buying its UK arm for £1 on 13 March 2023. SVB’s American operation is now in the hands of the Federal Deposit Insurance Corporation who are acting as the receiver.
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