$42 billion withdrawn, market panic: How Silicon Valley Bank collapsed in 48 hours
Mangalore Today News Network
Santa Clara, Mar 11, 2023: Silicon Valley Bank (SVB), a four-year-old US lender and a cornerstone of the tech startup scene, collapsed on Friday after a stunning 48 hours, making it the second biggest bank failure since the 2008 financial crisis. The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands, news agency AP said in a report.
California regulators closed down the tech lender and put it under the control of the US Federal Deposit Insurance Corporation. SVB failed after depositors hurried to withdraw money this week amid anxiety over the bank’s health.
Here’s how the Silicon Valley Bank crisis unfolded
* The company’s downward spiral started on Wednesday when it announced it needed to raise $2.25 billion to shore up its balance sheet. This led to panic among key venture capital firms, who reportedly advised companies to withdraw their money from the bank, CNN reported.
* As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. The bank said on Wednesday it was forced to sell all of its available-for-sale bonds at a $1.8 billion loss.
* The company’s stocks tumbled on Thursday, reaching 60 per cent by the end of regular trading. The liquidity issue at Santa Clara-based SVB came to light on Thursday night, following which its stock price crashed by more than half and by another 69% in pre-market trades on Friday.
* SVB’s shares were halted and it had abandoned efforts to quickly raise capital or find a buyer. Stocks of other banks such as First Republic, PacWest Bancorp, and Signature Bank were also halted on Friday. The collapse led to a crash in financials on both sides of the Atlantic and wiping off hundreds of billions of dollars, market data showed.
* California banking regulators will dispose of its assets, moving quickly to protect depositers as a crisis crippled through global markets and hit banking stocks. The bank had $209 billion in assets and $175 billion in deposits at the time of failure, FDIC said.
* Just 24 hours before the financial crisis, Greg Becker, the chief executive officer who presided over the collapsed Silicon Valley Bank, had personally called clients to assure them their money with the bank was safe, reported Reuters. SVB customers said CEO Greg Becker didn’t instill confidence when he urged them to “stay calm” during the call, a CNBC report said.
* Greg Becker joined the company three decades ago as a loan officer. He played a prominent role in steering the lender, valued at over $40 billion till last year, through the 2008 global financial crisis. He became president and CEO of SVB Financial Group (SIVB.O) in 2011.
* As the financial rout triggered a bloodbath on D street, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing. “This is an extinction-level event for startups,” Garry Tan, CEO of Y Combinator, a startup incubator that launched Airbnb, DoorDash and Dropbox told AFP.
* Nearly half of the US technology and health care companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers, according to the bank’s website.The bank also boasted of its connections to leading tech companies such as Shopify, ZipRecruiter and one of the top venture capital firms, Andreesson Horowitz, AP reported.
* The sudden collapse of a top Silicon Valley lender has pushed tech investors and startups to scramble. They are now left to figure out their financial exposure and founders are worrying about getting their money out.
Courtesy: India Today