SVB Sparks Panic in the Tech Industry

The tech industry was thrown into chaos on Thursday when Silicon Valley Bank (SVB), a little-known lender outside of Silicon Valley, announced a share sale to shore up its finances. This followed a significant loss on its portfolio, which prompted high deposit outflows at the bank due to a broader downturn in the startup industry, according to analysts. To make matters worse, SVB forecast a sharper

The Effect on SVB

SVB Financial Group Shares Crater on Stock Sale Announcement

The panic caused a number of prominent venture capitalists, including Peter Thiel’s Founders Fund, Coatue Management, and Union Square Ventures, to instruct portfolio businesses to limit exposure and pull their cash from the bank. As a result, SVB's stock plunged 60% on Thursday, and its bonds posted record declines. SVB's Chief Executive Officer, Greg Becker, held a conference call with the bank's clients, including venture capital investors, urging them to "stay calm" to avoid a run on the bank.

How SVB’s Woes Spread

SVB's problems coincided with the abrupt shutdown of Silvergate Capital Corp., causing twin shocks that sent ripples through the banking industry and pushed stocks lower. The KBW Bank Index, a benchmark of banking stocks, sank 7.7%, the most in nearly three years. Major US banks, including Bank of America Corp., Wells Fargo & Co., and JPMorgan Chase & Co., all slid at least 5%, while shares of Asian banks later followed their Wall Street peers lower.

Who are SVB's Clients?

SVB is deeply embedded in the US startup scene, as the only publicly-traded bank focused on Silicon Valley and tech startups. According to its website, it does business with nearly half of all US venture capital-backed startups, and 44% of US venture-backed tech and health-care companies that went public last year. It lists Pinterest Inc., Shopify Inc., and cybersecurity firm CrowdStrike Holdings Inc. among the bigger household names it has served.

What Could Happen Next?

Startups withdrawing funds are on the lookout for other lenders where they can park their cash, while investors in financial firms are closely watching other banks that may also be affected by malaise. It’s unclear what will happen when US markets reopen. Pershing Square Holdings Ltd. founder Bill Ackman has proposed a US government bailout to save SVB.

The worst-case scenario for any bank is that it ends up with too little cash to operate or suffers enough losses to erode its capital, prompting regulators to sell the bank to a stronger rival or wind it down. However, SVB's stock sale should help prevent that. Time will tell.

In conclusion, the tech industry was thrown into chaos by SVB's share sale to shore up its finances, following a significant loss on its portfolio. This caused high deposit outflows at the bank due to a broader downturn in the startup industry. The panic prompted prominent venture capitalists to instruct portfolio businesses to limit exposure and pull their cash from the bank, causing SVB's stock to plunge 60% and its bonds to post record declines.

While the situation is uncertain, startups withdrawing funds are on the lookout for other lenders where they can park their cash, while investors in financial firms are closely watching other banks that may also be affected by malaise.

SVB Sparks Panic in the Tech Industry

The Effect on SVB

How SVB’s Woes Spread

Who are SVB's Clients?

What Could Happen Next?

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