Shares in banks around the world have slid after troubles at one US bank triggered fears of a wider problem for the financial sector.
On Thursday, shares in Silicon Valley Bank (SVB), a key lender to technology start-ups, plunged after it announced plans to shore up its finances.
This had a knock-on effect, with the four largest US banks losing more than $50bn in market value. Bank shares in Asia and Europe fell sharply on Friday. Among the UK banks, HSBC shares fell 4.8% and Barclays dropped 3.8%.
SVB’s shares saw their biggest one-day drop on record on Thursday as they plunged by more than 60% and lost another 20% in after-hours trade.
The slide came a day after the bank announced a $2.25bn (£1.9bn) share sale to boost its finances. SVB launched the share sale after losing around $1.8bn when it offloaded a portfolio of assets, mainly US government bonds.
But more concerningly for the bank, some start-ups who have money deposited have been advised to withdraw funds.
Hannah Chelkowski, founder of Blank Ventures, a fund that invests in financial technology, told the BBC the situation was “wild”. She is advising companies in her portfolio to withdraw 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 said. “It’s brutal,” she added.
A crucial lender for early-stage businesses, SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.
SVB did not immediately respond to a BBC request for further comment.
In the wider market, there were concerns about the value of bonds held by banks as rising interest rates made those bonds less valuable.
Central banks around the world – including the US Federal Reserve and the Bank of England – have sharply increased interest rates as they try to curb inflation.
Banks tend to hold large portfolios of bonds and as a result are sitting on significant potential losses. The falls in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them.
But, if like Silicon Valley Bank, lenders have to sell the bonds they hold at a loss it could have an impact on their profits.
“The banks are casualties of the hike in interest rates,” Ray Wang, founder and chief executive of Silicon Valley-based consultancy Constellation Research told the BBC.
“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,” he added.
Russ Mould, investment director at AJ Bell, said the ripple effect of the problems at SVB showed these sorts of events “often hint at vulnerabilities in the wider system”.
“The fact SVB’s share placing has been accompanied by a fire sale of its bond portfolio raises concerns.
“Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income [bond] holdings.”
Source: bbc.com
