The shares of Silicon Valley Bank (SVB Stock) which is a major lender for tech start-ups, fell Thursday when investors began to cash out their savings.
The downturn came after the bank announced an $1.75bn (PS1.5bn) deal to sell shares to help strengthen its financials.
Bank shares have plummeted across the globe – including the four largest US banks, which include JP Morgan and Wells Fargo which have lost more than $50 billion in value.
One venture capitalist told, that the events of the day included “wild” and “brutal”.
Silicon Valley Bank(SVB Stock)
The shares of Asian banks also traded lower.
Shares of SVB witnessed the biggest single-day decline in history after a plunge of nearly 60%, and losing another 20% in trading after-hours.
The company announced the sale of shares after suffering losses of about $1.8bn by selling off an asset portfolio mostly US Treasuries.
However, more worryingly is the situation with the bank. a few startup companies that have deposits are being advised to take out funds.
Hannah Chelkowski, founder of Blank Ventures an investment fund which invests in technology for financial services, said to the BBC this situation had become “wild”. She is currently advising companies within her portfolio to take out their funds.
“It’s crazy how it’s just unravelled like this… The interesting thing is that it’s the most start-up friendly bank and supported start-ups so much through Covid. Now VCs are telling their portfolio companies to pull their funds,” she added.
“It’s brutal,” she said.
A key creditor for businesses in the early stages, SVB is the banking partner of nearly 50% of US venture-backed healthcare and technology businesses that were listed on the stock market last year.
SVB has not yet responded to the BBC request for additional information.
In the market as a whole there were worries regarding the worth of bank-issued bonds because of the rising rates that decreased the value of those bonds.
Central banks across the globe which include Bank of England and the US Federal Reserve and the Bank of England – have significantly increased interest rates in the last few years in their efforts to limit the rise in inflation.
Banks typically hold huge portfolios of bonds , and consequently are prone to significant losses. The decline in value of the bonds held by banks isn’t necessarily a problem , unless they have to sell the bonds.
However, if, as with Silicon Valley Bank, lenders must sell bonds they have at a loss, this could impact their earnings.
“Nobody at Silicon Valley Bank and in a lot of places thought that these interest rate hikes would have lasted this long. And I think that’s really what happened. They bet wrong,” said the economist.