“I’m asking you to keep calm because that’s the most important thing,” said Greg Becker, CEO of Silicon Valley Bank on March 9th in a video call with customers. “[…] The last thing we need is for you to panic.” Of course, the call is just as effective as being told not to think of a pink elephant right now. What sticks is what you shouldn’t think about: panic.
The reason for the video call was Press release of March 8th the Silicon Valley Bank, SVB for short, with the sober title: “SVB Financial Group Announces Planned Issuance of Common Shares and Convertible Preferred Shares”. In it, the SVB had announced their plans to collect money to secure their business.
A total of $1.25 billion of common stock was to be sold to investors, as well as $500 million of convertible preferred stock and $500 million of common stock in a separate transaction to private equity firm General Atlantic.
Obviously, this was to give the impression that the bank is acting conservatively and is borrowing this money to stabilize itself. But that backfired.
The timing couldn’t have been worse. On the same day, March 8, the US bank Silvergate Capital announced that it would voluntarily cease operations, as reported by t3n editor Nadine Graf. For years, Silvergate was the largest bank in the crypto industry.
Silvergate cited the tense situation on the cryptocurrency market as the reason for the transaction. At the same time, the bank was closely involved with the crypto exchange FTX, which unexpectedly filed for bankruptcy in November. US Senator Elizabeth Warren criticized Silvergate for a multi-billion dollar loan the company took out with a building society. Warren fears risks for the traditional banking system.
Back to SVB.
The news about SVB’s capital requirements led to violent reactions in the scene, because SVB has been an institution in the field of start-up financing for decades. The bank is known for its strong presence in the VC industry and has numerous tech companies such as Amazon, Apple, Google and Tesla in its client portfolio.
On Thursday 9 March, the day after the press release was published, SVB’s share price plummeted. The stock experienced the worst trading day in its history. Peter Thiel and other investors called on their portfolio companies to do soto withdraw funds from the SVB. Founders reacted with uncertainty.
SVBs also led to messages at other well-known US banks most drastic declines in value in three years. The value of the four largest US banks — JP Morgan Chase, Bank of America, Citigroup and Wells Fargo — fell by a total of $52 billion on Thursday, Handelsblatt reported.
According to CNBC SVB’s planned capital increase this Friday failed. Initially, it was said that the parent company SVB Financial was trying to find a buyer for the group. However, on the same day it was announced that the Silicon Valley Bank closed becomes. The California Department of Financial Protection and Innovation, which ordered the closure, appointed Federal Deoposit Insurace Corporation (FDIC) as the bankruptcy trustee.
How it goes on remains to be seen. It is clear that the crisis surrounding the prominent start-up financier from Silicon Valley, together with the liquidation of Silvergate, has shaken confidence in the banking sector.
The article was updated on March 10, 2023 at 5:58 p.m. with information about the bank closure.