The most famous bank in Silicon Valley has collapsed, and the butterfly in the coin industry has finally triggered a storm in the US banking industry?
A huge PR mistake.
Last night, Bank of America stocks crashed across the board, and the KBW Bank Index closed down 7.7%, the biggest daily decline since June 2020; SVB, the largest bank in Silicon Valley, fell sharply by 60%, and its market capitalization evaporated by 9.6 billion US dollars overnight, the biggest decline since listing in 1988.
But who would have thought that SVB's flash crash was actually a huge “PR mistake” and a butterfly effect of the firestorm in the coin industry (although it itself had no exposure to crypto assets). The reason it happened is probably simply due to the current “vulnerable sentiment” of investors.
Cryptocurrency industry thunderstorms, panic spreads
The day before, SVB issued a statement saying that the bank had previously sold $21 billion in bond investment assets and suffered an after-tax loss of 1.8 billion US dollars due to rising interest rates. Therefore, SVB plans to urgently raise US$2.25 billion by issuing common shares, preferred shares, and targeted increases to make up for losses.
This is a huge PR joke: in normal times, this statement doesn't cause much thought. However, just as SVB issued a statement, Silvergate, a “cryptocurrency friendly bank,” declared bankruptcy.
Imagine this scenario: While the news of the bank storm in the cryptocurrency industry was still rolling on TV, a large bank with a history of nearly 40 years announced that it had suffered huge losses and needed financing. This will obviously cause the market to speculate whether this big bank has experienced a liquidity crisis and is therefore in a hurry to get out of trouble with financing.
Before the thunderstorm of Silvergate, investors began a panic sell-off, which eventually affected the entire banking sector: the four largest US banks — J.P. Morgan, Citigroup, Wells Fargo, and Bank of America — all evaporated $52.4 billion in market capitalization during the day.
R.J. Grant, head of Keefe, Bruyette & Woods' New York trading department, told the media:
“SVB's financing made everyone nervous about the state of deposits in this bank. Many institutional investors don't want to hold shares in certain banks anymore. People are freaked out because SVB has always been a big bank that operates well. If it were to go wrong, people would wonder how bad the other smaller banks were.”
Tech blog TechCrunch jokes that people who work in SVB's investor relations department have to start looking for new jobs.
SVB's real dilemma
SVB mainly funds US tech startups and has little exposure to crypto assets. Theoretically speaking, the Silvergate thunderstorm had little to do with it. This PR outrage shouldn't have led to a “Lehman moment.”
However, SVB does face some operational difficulties.
First, there is the issue of rising interest rates mentioned above.
In the tech stock bull market during the pandemic, SVB invested $91 billion in long-term bonds such as US Treasury bonds. These bonds were originally very safe, but then in order to curb inflation, the Federal Reserve violently raised interest rates one after another, and US bond yields continued to rise. The bonds held by SVB depreciated sharply, and losses were serious.
According to data from the US Federal Deposit Insurance Corporation, securities held by the US banking sector generated an unrealized loss of 620 billion US dollars due to rising interest rates. US Federal Deposit Insurance Chairman Martin Gruenberg said on March 6 that unrealized losses “significantly reduced the equity capital of the banking industry.”
Second, the deposits of tech startups that SVB mainly serves are declining.
Half of the US venture-backed tech and life sciences companies are SVB clients. As the macroeconomic environment in the US deteriorated, venture capital financing slowed, and many startups ran out of capital.
The company's CEO Greg Becker told investors on Wednesday:
“The amount of money burned by customers has been high, and in February it increased further, causing deposits to fall short of expectations. We expect interest rates to continue to rise, markets to continue to be under pressure, and customer capital expenditure to rise.”
However, he also told the media:
“We have plenty of liquidity to support our customers.”
Moody's downgraded SVB's credit rating on Wednesday, citing “significant changes” in SVB's funding and profitability in the short term.
