Investing 10-03-2023 07:02 6 Views

Another US crypto-friendly bank downfall? Silicon Valley Bank stock drops 60%

The past few weeks have seen tech-focused banks offering crypto services and servicing crypto-friendly VCs run into financial difficulties. Silicon Valley Bank stock (NASDAQ:SIVB) dropped by over 60% on Thursday after the bank revealed selling assets and stock to raise funds.

First, it was Silvergate Capital Corp (NYSE: SI), which on Wednesday announced it would “wind down operations and voluntarily liquidate” its bank division days after the bank sold off assets at a huge loss to cover over $8 billion in withdrawals amid the broader crypto market meltdown.

Silicon Valley Bank raising funds to cover losses

Concerns have risen around Silicon Valley Bank’s move to sell assets and stock to raise capital because the move mirrors Silvergate’s move to sell assets to cover withdrawals.

The move has made crypto-focused venture capital (VC) investors to advise their portfolio companies to withdraw funds from the bank. The warning comes as crypto startups scramble for viable banking options.

Silicon Valley Bank is among the top 20 largest banks in the US and it provides banking services to crypto-friendly VC firms Andreessen Horowitz (a16z) and Sequoia. The bank disclosed that it sold securities worth $21 billion to cover a $1.8 billion loss in its balance sheet.

SVB also raised $500 million from venture capital firm General Atlantic and is also seeking to raise an additional $1.75 billion by selling its shares for $2.25 billion.

Commenting on the decision to sell assets and stocks, SVB said:

“Continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.”

SVB chief – the bank has enough liquidity

Even as the SVB stock price plunged by 60% on Thursday and extended the fall by a further 23% drop in the after-hours, the bank’s chief Greg Becker told investors to remain calm claiming the bank has:

“Ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble that would be a challenge.”

Becker has also said that the bank is “well capitalized” and has one of the lowest loan-to-deposit ratios of any bank of their size. He also said that the bank intends to reinvest the capital raised from the sales into “more asset-sensitive, short-term” securities.

Nevertheless, many have raised concerns concerning the potential knock-on effect if Silicon Valley Bank’s clients were to initiate a bank run. But on the other hand, founders and tech executives have aired their support via Twitter for the bank and urged people not to panic.

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