Silicon Valley Bank Crisis: For the second consecutive day, the shares of American company SVB Financial Group, which runs the largest commercial bank in the name of Silicon Valley Bank, are expected to fall again. On Thursday, the company’s stock had seen a decline of 60 percent, which is the biggest decline in the history of the company’s stock. The company disclosed that due to the loss in the bond portfolio, the company is preparing to raise $ 2 billion. After this announcement, the stock of SVB Financial Group plummeted. After this fall, $ 80 billion market value went in one stroke. After the fall in the stock of SVB Financial Group, the stock markets around the world closed with a heavy fall on Friday, including the Indian market.
What does SVB Financial Group do?
Silicon Valley Bank is one of the oldest and largest banks in the Valley that manages local deposits. The group specifically provides loans to technology companies. In addition, Venture Capital and Private Equity firms that invest in technology and biotechnology provide a variety of services to them. Apart from this, it also provides private banking services to HNIs. Apart from taking deposits, it also gives loans.
SVB Financial Group, the parent company of Silicon Valley Bank, has announced that it has sold shares worth $21 billion from its portfolio. And to improve the balance sheet, it is preparing to sell more shares worth $ 2.5 billion to raise funds. Due to the slowdown in the startup industry, huge withdrawals have been seen in bank deposits. SVB is expected to see a huge reduction in net interest income. It is believed that several big venture capitalists have asked their portfolio business to withdraw cash from the bank. After which there is restlessness in the market. SVB CEO Greg Baker has assured them by holding a conference call with the bank’s clients and venture capital investors.
Why SVB got into trouble
The closure of Silvergate Capital Corp has added to SVB’s woes. After which there has been a decline in the stocks of the entire banking sector. The bank index has declined by 7.7 per cent. Shares of Bank of America, Wells Fargo & Company, JP Morgan Chase fell up to 5 per cent. After the fall in the share prices of American banks, there has been a decline in the shares of banks in Asia as well.
SVG’s clients are mainly US startup companies. The bank’s focus is on Silicon Valley and tech startups. The company does most of its business with venture capital-backed startups in the US. But startups are withdrawing their money from the bank. Although there is a demand for bailout of SVB in America. Moody’s has downgraded the rating of SVB Financial Group. So many people are comparing this crisis with Lehman Brothers and Enron Corporation. This crisis has come when the interest rate in America has increased and there is a possibility of recession.