Two tech-focused banks go into problems, causing market volatility
The difficulties experienced by two tech-focused financial services businesses have given the sector’s confidence another jolt.
innovation companies from their earliest stages – before they get their first round of VC funding – all the way through and beyond their IPOs, according to Silicon Valley Bank (SVB), a member of the SVB Financial Group. Nearly half of US venture-backed technology and life science/healthcare companies rely on its banking services, it boasts.
SVB shares were sold for $315 each at the middle of February. They could be had for $265 on March 8. At the time this was written, shares were worth $105.
The justification for the dive was illustrated in a Wednesday declaration that SVB auctions off $21 billion of protections – making a $1.8 billion misfortune on that deal – and made a move to raise around $2.25 billion.
The sell-off and capital raising are primarily preventative measures, as explained in a letter to investors [PDF].
President and CEO Greg Becker wrote, Even before today, we had ample liquidity and flexibility to manage our liquidity position. He continued, VC deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted. Net interest income (NII) and net interest margin (NIM) continue to be under pressure as a result of the related shift in our funding mix toward more short-term borrowings and higher-cost deposits.
We lent money to startups that are spending it faster than expected, and some of them look like they might not make it because the economy is in a mess and investors are out of love with technology, is bank jargon for we lent money to startups that are spending it faster than expected.
Investors despise these actions because they indicate that SVB’s investment portfolio was in poor condition and required immediate attention and $20 billion, as evidenced by the 60 percent drop in share price. In reference to the $21 billion securities sale, the term fire sale is being used.
Its systems are down as a result of SVB’s news. At the time of this writing, the organization’s website reads: Silicon Valley Bank’s online banking system and mobile services are currently unavailable, but it does not explain why. An inability to handle unexpectedly high traffic is a common cause of technology outages. Customers who are anxious about the bank’s future may be causing SVB to experience an unexpectedly high volume of traffic.
According to reports, Becker has advised investors to remain calm because the Bank is not in a significant predicament and only required $21 billion quickly.
BREAKING: The business customers of Silicon Valley Bank $SIVB no longer have access to the online banking system or mobile services.
Today alone has seen a 20% decline in the stock. Our exposure to crypto is de minimis, according to SVB’s letter to shareholders on March 9, 2023 (pic.twitter.com/oJ1sSyLXnV).
Silvergate Bank, which boasts that it serves over 750 of the most recognized and well-funded digital currency exchanges, institutional investors, and software developers in fintech, cannot be said to be comparable.
That is done by Silvergate Bank through the Silvergate Exchange Network, a service that allows institutional investors to move US dollars to digital currency exchanges and trading partners 24/7 in real time at no additional cost.
Or, to be more precise, it used to. The Network was shut down last week.
Additionally, the organization made an announcement on Wednesday that the holding company of the Bank believes that a voluntary liquidation of the Bank and an orderly winding down of Bank operations is the best path forward.
Silvergate Bank plans full repayment of all deposits and will even attempt to locate a buyer for its platforms and technology, in contrast to the sudden demise of comparable cryptocurrency businesses.
Recent industry and regulatory developments were Silvergate’s reasons for liquidating the Bank. The fun times when you could do anything with tokenized assets without regulatory scrutiny are over and the bottom has fallen out of crypto as a result, is crypto-speak for the fun times when you could do anything.
From $4.91 on Wednesday, Silvergate shares fell one day to $2.86 on Thursday.
Both incidents have been interpreted as evidence of tech sector weakness. The difficulties of SVB and Silvergate are most unwelcome, as that industry has been a bright spot for investors in recent years and economic data from around the world does not currently make for pleasant reading. Especially considering that they come on top of the pessimistic outlook that the tech industry has for its own immediate future, as evidenced by the tens of thousands of layoffs carried out by large tech companies.
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