Tag: SVB Financial Group

See: U.S. and U.K. regulators consider ways to help SVB depositors, FDIC auctioning assets – reports

SVB collapse means more stock-market volatility: What investors need to know

It’s all eyes on federal banking regulators as investors sift through the aftermath of last week’s market-rattling collapse of Silicon Valley Bank.

The name of the game — and the key to a near-term market bounce — could be a deal that makes depositors at Silicon Valley Bank, or SVB, whole, analysts said. And efforts by regulators appeared to be focused on soothing worries over the ability of companies to access uninsured deposits — most such deposits exceed the FDIC’s $250,000 cap — in order to prevent runs similar to the event that capsized SVB from occurring elsewhere.

“If a deal gets struck tonight that doesn’t haircut depositors, the market is going to rally strongly,” said Barry Knapp, managing partner and director of research at Ironsides Macroeconomics, in a phone interview Sunday afternoon.

Investors will also be assessing the fallout to see if it complicates the Federal Reserve’s plans to hike interest rates further and potentially faster than previously expected in its bid to tamp down inflation.

SVB was closed by California regulators on Friday and taken over by the Federal Deposit Insurance Corp., which was conducting an auction of the bank Sunday afternoon, according to news reports.

“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Treasury Secretary Janet Yellen said in a Sunday morning interview on “Face the Nation” on CBS, while ruling out a bailout that would rescue bondholders and shareholders of SVB parent SVB Financial Group SIVB.

“We are concerned about depositors and are focused on trying to meet their needs,” she said.

Continued uncertainty could leave a “sell first, ask questions later” dynamic in effect Monday.

“In what is an already jittery market, the emotional response to a failed bank reawakens our collective muscle memory of the GFC,” Art Hogan, chief market strategist at B. Riley Financial Wealth, told MarketWatch in an email, referring to the 2007-2009 financial crisis. “When the dust settles, we will likely find that SVB is not a ‘systematic’ issue.”

Weekend Snapshot: What’s next for stocks after Silicon Valley Bank collapse as investors await crucial inflation reading

Knapp warned that market turmoil with significant potential downside for stocks could ensue if depositors are forced to take a haircut, likely sparking runs at other institutions. A deal that leaves depositors whole would lift the overall market and allow bank stocks, which got hammered last week, to “rip” higher “because they are cheap” and the banking system “as a whole…is in really good shape.”

Muscle memory, meanwhile, was in effect at the end of last week. Banking stocks dropped sharply Thursday, led by shares of regional institutions, and extended their losses Friday. The selloff in bank stocks pulled down the broader market, leaving the S&P 500
SPX,
-1.45%
down 4.6%, nearly wiping out the large-cap benchmark’s early 2023 gains.

The Dow Jones Industrial Average
DJIA,
-1.07%
saw a 4.6% weekly fall, while the Nasdaq Composite
COMP,
-1.76%
declined 4.7%. Investors sold stocks but piled into safe-haven U.S. Treasurys, prompting a sharp retreat in yields, which move opposite to prices.

SVB’s failure is being blamed on a mismatch between assets and liabilities. The bank catered to tech startups and venture-capital firms. Deposits grew rapidly and were placed in long-dated bonds, particularly government-backed mortgage securities. As the Federal Reserve began aggressively raising interest rates roughly a year ago, funding sources for tech startups dried up, putting pressure on deposits. At the same time, Fed rate hikes triggered a historic bond-market selloff, putting a big dent in the value of SVB’s securities holdings.

See: Silicon Valley Bank is a reminder that ‘things tend to break’ when Fed hikes rates

SVB was forced to sell a large chunk of those holdings at a loss to meet withdrawals, leading it to plan a dilutive share offering that stoked a further run on deposits and ultimately led to its collapse.

Analysts and economists largely dismissed the notion that SVB’s woes marked a systemic problem in the banking system.

Also see: 20 banks that are sitting on huge potential securities losses—as was SVB

Instead, SVB appears to be a “a rather special case of poor balance-sheet management, holding massive amounts of long-duration bonds funded by short-term liabilities,” said Erik F. Nielsen, group chief economics adviser at UniCredit Bank, in a Sunday note.

“I’ll stick my neck out and suggest that markets are vastly overreacting,” he said.

Implications for the Fed’s monetary policy path also loom large. Fed-funds futures traders last week moved to price in a more-than-70% chance of an outsize 50-basis-point, or half a percentage point, rise in the benchmark interest rate at the Fed’s March meeting after Chair Jerome Powell told lawmakers that rates would need to move higher than previously anticipated.

Expectations swung back to a 25-basis-point, or quarter-point move, as the SVB collapse unfolded, with traders also scaling back expectations for when rates will likely peak.

Meanwhile, a flight to safety saw the yield on the 2-year Treasury note, which had earlier in the week topped 5% for the first time since 2007, end the week down 27.3 basis points at 4.586%.

The market reaction wasn’t unusual, said Michael Kramer of Mott Capital Management, in a Sunday note, and should reverse once the situation around SVB calms down.

Powell said incoming economic data would determine the size of the Fed’s next rate move. The market reaction to a stronger-than-expected rise in February nonfarm payrolls, which was tempered by a slowdown in wage growth and a rise in the unemployment rate, was clouded by the tumult around SVB.

“I think they will raise rates by at least 25 basis points and signal that more rate hikes are coming,” Kramer said. “If they were to pause rate hikes unexpectedly, it would send a warning message that they are seeing something of grave concern, causing a significant change in their policy path, and that would not be bullish for stocks.”

This one chart shows the uniqueness of Silicon Valley Bank and how it set itself up to fail

Economist Ed Hyman says it might be a good idea for the Fed to pause because of this financial shock

See: Silicon Valley Bank branches closed by regulator in biggest bank failure since Washington Mutual

Hedge funds and banks offer to buy deposits trapped at Silicon Valley Bank

Hedge funds are offering to buy startup deposits at Silicon Valley Bank (SVB) for as little as 60 cents on the dollar, Semafor reported on Saturday, citing people familiar with the matter.

Bids range from 60 to 80 cents on the dollar, the report said adding that the range reflects expectations for how much of the uninsured deposits will be eventually recovered once the bank’s assets are sold or wound down.

Firms like Oaktree which are known for investing in distressed debt are contacting startup businesses after SVB’s
SIVB,
-60.41%
seizure by the Federal Deposit Insurance Corp (FDIC), the report said.

Traders from investment bank Jefferies are also contacting startup founders with deposits at the bank, offering to buy their deposit claims at a discount, The Information reported separately.

Jefferies is offering at least 70 cents on the dollar for deposit claims, the report said, citing several people with direct knowledge of the matter.

Oaktree declined to comment on the reports. Jefferies could not be immediately reached for comment.

Silicon Valley Bank was taken over by the U.S. Federal Deposit Insurance Corporation on Friday after depositors, concerned about the lender’s financial health, rushed to withdraw their their deposits. The two-day run on the bank stunned markets, wiping out more than $100 billion in market value for U.S. banks.

Silicon Valley Bank employees received bonuses hours before government takeover

Police officers leave Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.

Noah Berger | AFP | Getty Images

Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.

The Santa Clara, California-based bank has historically paid employee bonuses on the second Friday of March, said the people, who declined to be identified speaking about the awards. The payments were for work done in 2022 and had been in process days before the bank’s collapse, the sources said.

This year, bonus day happened to fall on SVB’s final day of independence. The institution, in the throes of a bank run triggered by panicked venture capital investors and startup founders, was seized by the Federal Deposit Insurance Corporation (FDIC) around midday Friday.

On Friday, SVB CEO Greg Becker addressed workers in a two-minute video in which he said that he no longer made decisions at the 40-year-old bank, according to the people.

The size of the payouts couldn’t be determined, but SVB bonuses range from about $12,000 for associates to $140,000 for managing directors, according to Glassdoor.com.

SVB was the highest-paying publicly traded bank in 2018, with employees getting an average of $250,683 for that year, according to Bloomberg.

After its seizure, the FDIC offered SVB employees 45 days of employment, the people said. The bank had 8,528 employees as of December.

A spokesman for the FDIC declined to comment on the bonuses.

Investors implore the government to step in after Silicon Valley Bank failure

Big names in Silicon Valley and the finance sector are calling publicly for the federal government to push another bank to assume Silicon Valley Bank’s assets and obligations after the financial institution failed on Friday.

The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and may be able to begin paying those depositors as early as Monday.

But the vast majority of SVB’s customers were businesses that had more than that on deposit at the bank. As of December, more than 95% of the bank’s deposits were uninsured, according to regulatory filings. Many of these depositors are startups, and many are concerned that they will not be able to make payroll this month, which in turn could spark a wide wave of failures and layoffs in the tech industry.

Investors are concerned that these failures could reduce confidence in the banking sector, particularly mid-sized banks with under $250 billion in deposits. These banks are not deemed “too big to fail” and do not have to undergo regular stress tests or other safety valve measures passed in the wake of the 2008 financial crisis.

Venture capitalist and former tech CEO David Sacks called for the federal government to push another bank to buy SVB’s assets, writing on Twitter, “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”

VC Mark Suster agreed, tweeting, “I suspect this is what they’re working on. I expect statements by Sunday. We’ll see. I sure hope so or Monday will be brutal.”

Investor Bill Ackman made a similar argument in a lengthy tweet, writing, “The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs).”

Benchmark partner Eric Vishria wrote, “If SVB depositors aren’t made whole, then corporate boards will have to insist their companies use two or more of the BIG four banks exclusively. Which will crush smaller banks. AND make the too big to fail problem way worse.”

Since its founding almost 40 years ago, SVB had become a centerpiece of finance in the tech industry, particularly for startups and the VCs who invest in them. The firm was known for extending banking services to early-stage startups which would have struggled to get banking services elsewhere before generating stable cash flow. But the firm itself faced cashflow problems this year as startup financing dried up and its own assets were locked down in long-term bonds.

The company surprised investors on Wednesday with news that it needed to raise $2.25 billion to shore up its balance sheet, and that it had sold all its available-for-sale bonds at a $1.8 billion loss. Reassurances from the bank’s executives were not enough to stop a run, and depositors withdrew more than $42 billion by the end of the day Thursday, setting up the second-largest bank failure in U.S. history.

Many in the tech community blamed VCs for spurring the run, as many told their portfolio companies to put their money into safer places after SVB’s Wednesday announcement.

“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC on Friday. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”

Observers are calling out the irony as some VCs with notoriously libertarian free-market attitudes are are now calling for a bailout. For instance, reactions to Sacks’ tweet included statements like “Excuse me, sir. Suddenly the government is the answer?!?” and “We capitalists want socialism!“

Some politicians opposed any bailout, with Rep. Matt Gaetz, R-Fla., tweeting, “If there is an effort to use taxpayer money to bail out Silicon Valley Bank, the American people can count on the fact that I will be there leading the fight against it.”

But financier and former Trump communications director Anthony Scaramucci argued, “It isn’t a political decision to bailout SVB. Don’t make the Lehman mistake. It isn’t about rich or poor of who benefits, it’s about stopping contagion and protecting the system. Make depositors whole or expect lots of tragic unintended consequences.”

— Hugh Son and Ari Levy contributed to this story.

Silicon Valley Bank’s demise began with a downgrade threat

Police officers leave Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.

Noah Berger | AFP | Getty Images

In the middle of last week, Moody’s Investors Service delivered alarming news to SVB Financial, the parent of Silicon Valley Bank: the ratings firm was preparing to downgrade the bank’s credit.

That phone call, described by two people familiar with the situation, began the process toward Friday’s spectacular collapse of the startup-focused lender, the biggest bank failure since the 2008 financial crisis.

Friday’s collapse sent jitters through global markets and walloped banking stocks. Investors worry that the Federal Reserve’s aggressive interest rate increases to fight inflation are exposing vulnerabilities in the financial system.

Details of SVB’s failed response to the prospect of the downgrade, reported by Reuters for the first time, show how quickly confidence in financial institutions can erode. The failure also sent shockwaves through California’s startup economy, with many companies unsure of how much of their deposits they can recover and worrying about how to make payroll.

The Moody’s call came after the value of the bonds where SVB had parked its money fell due to the higher interest rates.

Worried the downgrade could undermine the confidence of investors and clients in the bank’s financial health, SVB Chief Executive Greg Becker’s team called Goldman Sachs Group Inc (GS.N) bankers for advice and flew to New York for meetings with Moody’s and other ratings firms, the sources said.

The sources asked not to be identified because they are bound by confidentiality agreements.

SVB then worked on a plan over the weekend to boost the value of its holdings. It would sell more than $20 billion worth of low-yielding bonds and reinvest the proceeds in assets that deliver higher returns.

The transaction would generate a loss, but if SVB could fill that funding hole by selling shares, it would avoid a multi-notch downgrade, the sources said.

The plan backfired.

News of the share sale spooked clients, primarily technology startups, that rushed to withdraw their deposits, upending the capital raising. Regulators stepped in on Friday, shutting down the bank and putting it in receivership.

SVB, Goldman Sachs and Moody’s representatives did not immediately respond to requests for comment.

The unraveling

As SVB executives debated when to proceed with the fundraising, they heard from Moody’s that the downgrade was coming this week, the sources said.

SVB sprang into action in the hopes of softening the blow.

The bank lined up private equity firm General Atlantic, which agreed to buy $500 million of the $2.25 billion stock sale, while another investor said it could not reach a deal on SVB’s timeline, the sources said.

By Wednesday, SVB had sold the bond portfolio for a $1.8 billion loss.

Moody’s downgraded the bank, but only by a notch because of SVB’s bond portfolio sale and plan to raise capital.

Ideally, the stock sale would have been completed by before the market opened on Thursday, to avoid the sale being jeopardized by any declines in SVB’s shares once news of the sale got out. But the sources said that was not an option given the tight schedule.

SVB had not done the preparatory work needed to sign confidentiality agreements with investors who would commit to a deal of such a size. Its lawyers advised the bank that investors would need at least 24 hours to digest new downbeat financial projections and complete the sale, the sources said.

Reuters could not determine why SVB did not start those preparations earlier.

SVB’s stock plunged on news of the share sale, ending Thursday down 60% at $106.04. Goldman Sachs bankers still hoped they could close the sale at $95, the sources said.

Then news came of venture capital firms advising startups they had invested in to pull money out of Silicon Valley Bank for fear of an imminent bank run.

This quickly became a self-fulfilling prophecy: General Atlantic and other investors walked away and the stock sale collapsed.

General Atlantic did not respond to a request for comment.

California banking regulators closed the bank on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) receiver. The FDIC will dispose of its assets.

In the past, the regulator has struck deals quickly, sometimes over just a weekend, something that some experts said could happen with SVB.

Companies scramble to meet payroll, pay bills after SVB’s swift failure

The sudden collapse of Silicon Valley Bank has thousands of tech startups wondering what happens now to their millions of dollars in deposits, money market investments and outstanding loans.

Most importantly, they’re trying to figure how to pay their employees.

“The number one question is, ‘How do you make payroll in the next couple days,’” said Ryan Gilbert, founder of venture firm Launchpad Capital. “No one has the answer.”

SVB, a 40-year-old bank that’s known for handling deposits and loans for thousands of tech startups in Silicon Valley and beyond, fell apart this week and was shut down by regulators in the largest bank failure since the financial crisis. The demise began late Wednesday, when SVB said it was selling $21 billion of securities at a loss and trying to raise money. It turned into an all-out panic by late Thursday, with the stock down 60% and tech executives racing to pull their funds.

While bank failures aren’t entirely uncommon, SVB is a unique beast. It was the 16th biggest bank by assets at the end of 2022, according to the Federal Reserve, with $209 billion in assets and over $175 billion in deposits.

Employees stand outside of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.

Justin Sullivan | Getty Images

However, unlike a typical brick-and-mortar bank — Chase, Bank of America or Wells Fargo — SVB is designed to serve businesses, with over half its loans to venture funds and private equity firms and 9% to early and growth-stage companies. Clients that turn to SVB for loans also tend to store their deposits with the bank.

The Federal Deposit Insurance Corporation, which became the receiver of SVB, insures $250,000 of deposits per client. Because SVB serves mostly businesses, those limits don’t mean much. As of December, roughly 95% of SVB’s deposits were uninsured, according to filings with the SEC.

There's going to be a lot of anxiety over SVB the next couple days, says FirstMark Capital's Rich Heitzmann

The FDIC said in a press release that insured depositors will have access to their money by Monday morning.

But the process is much more convoluted for uninsured depositors. They’ll receive a dividend within a week covering an undetermined amount of their money and a “receivership certificate for the remaining amount of their uninsured funds.”

“As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors,” the regulator said. Typically, the FDIC would put the assets and liabilities in the hands of another bank, but in this case it created a separate institution, the Deposit Insurance National Bank of Santa Clara (DINB), to take care of insured deposits.

Clients with uninsured funds — anything over $250,000 — don’t know what to do. Gilbert said he’s advising portfolio companies individually, instead of sending out a mass email, because every situation is different. He said the universal concern is meeting payroll for March 15.

Gilbert is also a limited partner in over 50 venture funds. On Thursday, he received several messages from firms regarding capital calls, or the money that investors in the funds send in as transactions take place.

“I got emails saying saying don’t send money to SVB, and if you have let us know,” Gilbert said.

The concerns regarding payroll are more complex than just getting access to frozen funds, because many of those services are handled by third parties that were working with SVB.

Rippling, a back office-focused startup, handles payroll services for many tech companies. On Friday morning, the company sent a note to clients telling them that, because of the SVB news, it was moving “key elements of our payments infrastructure” to JPMorgan Chase.

“You need to inform your bank immediately about an important change to the way Rippling debits your account,” the memo said. “If you do not make this update, your payments, including payroll, will fail.”

Rippling CEO Parker Conrad said in a series of tweets on Friday that some payments are getting delayed amid the FDIC process.

“Our top priority is to get our customers’ employees paid as soon as we possibly can, and we’re working diligently toward that on all available channels, and trying to learn what the FDIC takeover means for today’s payments,” Conrad wrote.

One founder, who asked to remain anonymous, told CNBC that everyone is scrambling. He said he’s spoken with more than 30 other founders, and talked to a finance chief from a billion-dollar startup who has tried to move more than $45 million out of SVB to no avail. Another company with 250 employees told him that SVB has “all our cash.”

A SVB spokesperson pointed CNBC back to the FDIC’s statement when asked for comment.

‘Significant contagion risk’

For the FDIC, the immediate goal is to quell fears of systemic risk to the banking system, said Mark Wiliams, who teaches finance at Boston University. Williams is quite familiar with the topic as well as the history of SVB. He used to work as a bank regulator in San Francisco.

Williams said the FDIC has always tried to work swiftly and to make depositors whole, even if when the money is uninsured. And according to SVB’s audited financials, the bank has the cash available — its assets are greater than its liabilities — so there’s no apparent reason why clients shouldn’t be able to retrieve the bulk of their funds, he said.

“Bank regulators understand not moving quickly to make SVB’s uninsured depositors whole would unleash significant contagion risk to the broader banking system,” Williams said.

Treasury Secretary Janet Yellen on Friday met with leaders from the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency regarding the SVB meltdown. The Treasury Department said in a readout that Yellen “expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event.”

On the ground in Silicon Valley, the process has been far from smooth. Some execs told CNBC that, by sending in their wire transfer early on Thursday, they were able to successfully move their money. Others who took action later in the day are still waiting — in some cases, for millions of dollars — and are uncertain if they’ll be able to meet their near-term obligations.

Regardless of if and how quickly they’re able to get back up and running, companies are going to change how they think about their banking partners, said Matt Brezina, a partner at Ford Street Ventures and investor in startup bank Mercury.

Brezina said that after payroll, the biggest issue his companies face is accessing their debt facilities, particularly for those in financial technology and labor marketplaces.

“Companies are going to end up diversifying their bank accounts much more coming out of this,” Brezina said. “This is causing a lot of pain and headaches for lots of founders right now. And it’s going to hit their employees and customers too.”

SVB’s rapid failure could also serve as a wakeup call to regulators when it comes to dealing with banks that are heavily concentrated in a particular industry, Williams said. He said that SVB has always been overexposed to tech even though it managed to survive the dot-com crash and financial crisis.

In its mid-quarter update, which began the downward spiral on Wednesday, SVB said it was selling securities at a loss and raising capital because startup clients were continuing to burn cash at a rapid clip despite the ongoing slump in fundraising. That meant SVB was struggling to maintain the necessary level of deposits.

Rather than sticking with SVB, startups saw the news as troublesome and decided to rush for the exits, a swarm that gained strength as VCs instructed portfolio companies to get their money out. Williams said SVB’s risk profile was always a concern.

“It’s a concentrated bet on an industry that it’s going to do well,” Williams said. “The liquidity event would not have occurred if they weren’t so concentrated in their deposit base.”

SVB was started in 1983 and, according to its written history, was conceived by co-founders Bill Biggerstaff and Robert Medearis over a poker game. Williams said that story is now more appropriate than ever.

“It started as the result of a poker game,” Williams said. “And that’s kind of how it ended.”

— CNBC’s Lora Kolodny, Ashley Capoot and Rohan Goswami contributed to this report.

WATCH: SVB fallout could mean less credit is available

SVB could lead to tighter lending standards and less credit availability, says Wedbush's David Chiaverini

All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing.

Here’s how the second-biggest bank collapse in U.S. history happened in just 48 hours

On Wednesday, Silicon Valley Bank was a well-capitalized institution seeking to raise some funds.

Within 48 hours, a panic induced by the very venture capital community that SVB had served and nurtured ended the bank’s 40-year-run.

Regulators shuttered SVB Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever. The company’s downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.

Even now, as the dust begins to settle on the second bank wind-down announced this week, members of the VC community are lamenting the role that other investors played in SVB’s demise.

“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”

A Brinks armored truck sits parked in front of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.

Justin Sullivan | Getty Images

The episode is the latest fallout from the Federal Reserve‘s actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.

Shares of Silicon Valley Bank collapsed this week.

The roots of SVB’s collapse stem from dislocations spurred by higher rates. 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. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.

The sudden need for fresh capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter. The concern: a bank run at SVB could pose an existential threat to startups who couldn’t tap their deposits.

SVB customers said CEO Greg Becker didn’t instill confidence when he urged them to “stay calm” during a call that began Thursday afternoon. The stock’s collapse continued unabated, reaching 60% by the end of regular trading. Importantly, Becker couldn’t assure listeners that the capital raise would be the bank’s last, said a person on the call.

Death blow

By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources, the regulator said.

Falvey, a former SVB employee who launched his own fund in 2018, pointed to the highly interconnected nature of the tech investing community as a key reason for the bank’s sudden demise.

Prominent funds including Union Square Ventures and Coatue Management blasted emails to their entire rosters of startups in recent days, instructing them to pull funds out of SVB on concerns of a bank run. Social media only heightened the panic, he noted.

“When you say, `Hey, get your deposits out, this thing is gonna fail,’ that’s like yelling fire in a crowded theater,” Falvey said. “It’s a self-fulfilling prophecy.”

Another venture investor, TSVC partner Spencer Greene, also criticized investors who “were wrong on the facts” about SVB’s position.

“It appears to me that there was no liquidity issue until a couple of VCs called it,” Greene said. “They were irresponsible, and then it became self-fulfilling.”

‘Business as usual’

Thursday evening, some SVB customers received emails assuring them that it was “business as usual” at the bank.

“I’m sure you’ve been hearing some buzz about SVB in the markets today so wanted to reach out to provide some context,” one SVB banker wrote to a client, according to a copy of the message obtained by CNBC.

“It is business as usual at SVB,” the banker wrote. “Understandably there may be questions and I want to make myself available if you have any concerns.”

By Friday, as shares of SVB continued to sink, the bank ditched efforts to sell shares, CNBC’s David Faber reported. Instead, it was looking for a buyer, he reported. But the flight of deposits made the sale process harder, and that effort failed too, Faber said.

A customer stands outside of a shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.

Justin Sullivan | Getty Images

Falvey, who started his career at Wells Fargo and consulted for a bank that was seized during the financial crisis, said that his analysis of SVB’s mid-quarter update from Wednesday gave him confidence. The bank was well capitalized and could make all depositors whole, he said. He even counseled his portfolio companies to keep their funds at SVB as rumors swirled.

Now, thanks to the bank run that ended in SVB’s seizure, those who remained with SVB face an uncertain timeline for retrieving their money. While insured deposits are expected to be available as early as Monday, the lion’s share of deposits held by SVB were uninsured, and it’s unclear when they will be freed up.

“The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due,” the California financial regulator stated. “The bank is now insolvent.”

Silicon Valley Bank meltdown: Contagion risk or contained?

SVB’s collapse could be the thing that keeps the Fed from wrecking the entire economy, says Cramer

Mad Money host Jim Cramer weighs in on the failure of Silicon Valley Bank and the impact it could have on the markets and the Fed.

There’s nothing more deflationary than the collapse of a highly-indebted bank, says Cramer

Mad Money host Jim Cramer weighs in on the failure of Silicon Valley Bank and the impact it could have on the markets and the Fed.

Roku says 26% of its cash reserves are stuck in Silicon Valley Bank

A video sign displays the logo for Roku Inc, a Fox-backed video streaming firm, in Times Square after the company’s IPO at the Nasdaq Market in New York, September 28, 2017.

Brendan McDermid | Reuters

Roku has $487 million of cash and cash equivalents in uninsured deposits at failed Silicon Valley Bank, the streaming media company said in an SEC filing Friday.

About 26% of Roku’s $1.9 billion in cash was deposited with SVB, which was placed into receivership by the FDIC midday Friday.

Roku shares fell over 4% after hours on the news.

“At this time, the Company does not know to what extent the Company will be able to recover its cash on deposit at SVB,” Roku said in a press release.

Nonetheless, Roku said it believed it would be able to meet its capital obligations for the “next twelve months and beyond” with its unaffected $1.4 billion in cash reserves at other, “large financial institutions.”

“As stated in our 8-K, we expect that Roku’s ability to operate and meet its contractual obligations will not be impacted,” a Roku spokesperson said in a statement to CNBC.

The collapse of SVB jarred both large and small companies alike. As the favored lender and banker for many Silicon Valley startups and venture capital firms, the company’s receivership has alarmed founders, who worry about meeting payroll and critical obligations with limited cash available.

FDIC insurance only covers the first $250,000 in deposit accounts, a fraction of the cash that Roku and many other companies had vaulted with SVB.

20 banks that are sitting on huge potential securities losses—as was SVB

Silicon Valley Bank has failed following a run on deposits, after its parent company’s share price crashed a record 60% on Thursday.

Trading of SVB Financial Group’s
SIVB,
-60.41%
stock was halted early Friday, after the shares plunged again in premarket trading. Treasury Secretary Janet Yellen said SVB was one of a few banks she was “monitoring very carefully.” Reaction poured in from several analysts who discussed the bank’s liquidity risk.

California regulators closed Silicon Valley Bank and handed the wreckage over to the Federal Deposit Insurance Administration later on Friday.

Below is the same list of 10 banks we highlighted on Thursday that showed similar red flags to those shown by SVB Financial through the fourth quarter. This time, we will show how much they reported in unrealized losses on securities — an item that played an important role in SVB’s crisis.

Below that is a screen of U.S. banks with at least $10 billion in total assets, showing those that appeared to have the greatest exposure to unrealized securities losses, as a percentage of total capital, as of Dec. 31.

First, a quick look at SVB

Some media reports have referred to SVB of Santa Clara, Calif., as a small bank, but it had $212 billion in total assets as of Dec. 31, making it the 17th largest bank in the Russell 3000 Index
RUA,
-1.70%
as of Dec. 31. That makes it the largest U.S. bank failure since Washington Mutual in 2008.

One unique aspect of SVB was its decades-long focus on the venture capital industry. The bank’s loan growth had been slowing as interest rates rose. Meanwhile, when announcing its $21 billion dollars in securities sales on Thursday, SVB said it had taken the action not only to lower its interest-rate risk, but because “client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted.”

SVB estimated it would book a $1.8 billion loss on the securities sale and said it would raise $2.25 billion in capital through two offerings of new shares and a convertible bond offering. That offering wasn’t completed.

So this appears to be an example of what can go wrong with a bank focused on a particular industry. The combination of a balance sheet heavy with securities and relatively light on loans, in a rising-rate environment in which bond prices have declined and in which depositors specific to that industry are themselves suffering from a decline in cash, led to a liquidity problem.

Unrealized losses on securities

Banks leverage their capital by gathering deposits or borrowing money either to lend the money out or purchase securities. They earn the spread between their average yield on loans and investments and their average cost for funds.

The securities investments are held in two buckets:

Available for sale — these securities (mostly bonds) can be sold at any time, and under accounting rules are required to be marked to market each quarter. This means gains or losses are recorded for the AFS portfolio continually. The accumulated gains are added to, or losses subtracted from, total equity capital.
Held to maturity — these are bonds a bank intends to hold until they are repaid at face value. They are carried at cost and not marked to market each quarter.

In its regulatory Consolidated Financial Statements for Holding Companies—FR Y-9C, filed with the Federal Reserve, SVB Financial, reported a negative $1.911 billion in accumulated other comprehensive income as of Dec. 31. That is line 26.b on Schedule HC of the report, for those keeping score at home. You can look up regulatory reports for any U.S. bank holding company, savings and loan holding company or subsidiary institution at the Federal Financial Institution Examination Council’s National Information Center. Be sure to get the name of the company or institution right — or you may be looking at the wrong entity.

Here’s how accumulated other comprehensive income (AOCI) is defined in the report: “Includes, but is not limited to, net unrealized holding gains (losses) on available-for-sale securities, accumulated net gains (losses) on cash flow hedges, cumulative foreign currency translation adjustments, and accumulated defined benefit pension and other postretirement plan adjustments.”

In other words, it was mostly unrealized losses on SVB’s available-for-sale securities. The bank booked an estimated $1.8 billion loss when selling “substantially all” of these securities on March 8.

The list of 10 banks with unfavorable interest margin trends

On the regulatory call reports, AOCI is added to regulatory capital. Since SVB’s AOCI was negative (because of its unrealized losses on AFS securities) as of Dec. 31, it lowered the company’s total equity capital. So a fair way to gauge the negative AOCI to the bank’s total equity capital would be to divide the negative AOCI by total equity capital less AOCI — effectively adding the unrealized losses back to total equity capital for the calculation.

Getting back to our list of 10 banks that raised similar red margin flags to those of SVB, here’s the same group, in the same order, showing negative AOCI as a percentage of total equity capital as of Dec. 31. We have added SVB to the bottom of the list. The data was provided by FactSet:

Bank	Ticker	City	AOCI ($mil)	Total equity capital ($mil)	AOCI/ TEC – AOCI	Total assets ($mil)
Customers Bancorp Inc.	CUBI, -13.11%	West Reading, Pa.	-$163	$1,403	-10.4%	$20,896
First Republic Bank	FRC, -14.84%	San Francisco	-$331	$17,446	-1.9%	$213,358
Sandy Spring Bancorp Inc.	SASR, -2.91%	Olney, Md.	-$132	$1,484	-8.2%	$13,833
New York Community Bancorp Inc.	NYCB, -5.99%	Hicksville, N.Y.	-$620	$8,824	-6.6%	$90,616
First Foundation Inc.	FFWM, -9.11%	Dallas	-$12	$1,134	-1.0%	$13,014
Ally Financial Inc.	ALLY, -5.70%	Detroit	-$4,059	$12,859	-24.0%	$191,826
Dime Community Bancshares Inc.	DCOM, -2.81%	Hauppauge, N.Y.	-$94	$1,170	-7.5%	$13,228
Pacific Premier Bancorp Inc.	PPBI, -1.95%	Irvine, Calif.	-$265	$2,798	-8.7%	$21,729
Prosperity Bancshare Inc.	PB, -4.46%	Houston	-$3	$6,699	-0.1%	$37,751
Columbia Financial, Inc.	CLBK, -1.78%	Fair Lawn, N.J.	-$179	$1,054	-14.5%	$10,408
SVB Financial Group	SIVB, -60.41%	Santa Clara, Calif.	-$1,911	$16,295	-10.5%	$211,793
Source: FactSet

Click on the tickers for more about each bank.

Read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Ally Financial Inc.
ALLY,
-5.70%
— the third largest bank on the list by Dec. 31 total assets — stands out as having the largest percentage of negative accumulated comprehensive income relative to total equity capital as of Dec. 31.

To be sure, these numbers don’t mean that a bank is in trouble, or that it will be forced to sell securities for big losses. But SVB had both a troubling pattern for its interest margins and what appeared to be a relatively high percentage of securities losses relative to capital as of Dec. 31.

Banks with the highest percentage of negative AOCI to capital

There are 108 banks in the Russell 3000 Index
RUA,
-1.70%
that had total assets of at least $10.0 billion as of Dec. 31. FactSet provided AOCI and total equity capital data for 105 of them. Here are the 20 which had the highest ratios of negative AOCI to total equity capital less AOCI (as explained above) as of Dec. 31:

Bank	Ticker	City	AOCI ($mil)	Total equity capital ($mil)	AOCI/ (TEC – AOCI)	Total assets ($mil)
Comerica Inc.	CMA, -5.01%	Dallas	-$3,742	$5,181	-41.9%	$85,406
Zions Bancorporation N.A.	ZION, -2.44%	Salt Lake City	-$3,112	$4,893	-38.9%	$89,545
Popular Inc.	BPOP, -1.56%	San Juan, Puerto Rico	-$2,525	$4,093	-38.2%	$67,638
KeyCorp	KEY, -2.55%	Cleveland	-$6,295	$13,454	-31.9%	$189,813
Community Bank System Inc.	CBU, -0.22%	DeWitt, N.Y.	-$686	$1,555	-30.6%	$15,911
Commerce Bancshares Inc.	CBSH, -1.61%	Kansas City, Mo.	-$1,087	$2,482	-30.5%	$31,876
Cullen/Frost Bankers Inc.	CFR, -1.08%	San Antonio	-$1,348	$3,137	-30.1%	$52,892
First Financial Bankshares Inc.	FFIN, -0.90%	Abilene, Texas	-$535	$1,266	-29.7%	$12,974
Eastern Bankshares Inc.	EBC, -3.16%	Boston	-$923	$2,472	-27.2%	$22,686
Heartland Financial USA Inc.	HTLF, -1.26%	Denver	-$620	$1,735	-26.3%	$20,244
First Bancorp	FBNC, -0.31%	Southern Pines, N.C.	-$342	$1,032	-24.9%	$10,644
Silvergate Capital Corp. Class A	SI, -11.27%	La Jolla, Calif.	-$199	$603	-24.8%	$11,356
Bank of Hawaii Corp	BOH, -6.15%	Honolulu	-$435	$1,317	-24.8%	$23,607
Synovus Financial Corp.	SNV, -2.91%	Columbus, Ga.	-$1,442	$4,476	-24.4%	$59,911
Ally Financial Inc	ALLY, -5.70%	Detroit	-$4,059	$12,859	-24.0%	$191,826
WSFS Financial Corp.	WSFS, -2.78%	Wilmington, Del.	-$676	$2,202	-23.5%	$19,915
Fifth Third Bancorp	FITB, -4.17%	Cincinnati	-$5,110	$17,327	-22.8%	$207,452
First Hawaiian Inc.	FHB, -3.48%	Honolulu	-$639	$2,269	-22.0%	$24,666
UMB Financial Corp.	UMBF, -3.35%	Kansas City, Mo.	-$703	$2,667	-20.9%	$38,854
Signature Bank	SBNY, -22.87%	New York	-$1,997	$8,013	-20.0%	$110,635

Again, this is not to suggest that any particular bank on this list based on Dec. 31 data is facing the type of perfect storm that has hurt SVB Financial. A bank sitting on large paper losses on its AFS securities may not need to sell them. In fact Comerica Inc.
CMA,
-5.01%,
which tops the list, also improved its interest margin the most over the past four quarters, as shown here.

But it is interesting to note that Silvergate Capital Corp.
SI,
-11.27%,
which focused on serving clients in the virtual currency industry, made the list. It is shuttering its bank subsidiary voluntarily.

Another bank on the list facing concern among depositors is Signature Bank
SBNY,
-22.87%
of New York, which has a diverse business model, but has also faced a backlash related to the services it provides to the virtual currency industry. The bank’s shares fell 12% on Thursday and were down another 24% in afternoon trading on Friday.

Signature Bank said in a statement that it was in a “strong, well-diversified financial position.”

SVB Financial bonds sink to 31 cents on the dollar after failure of Silicon Valley Bank

Heavy trading in SVB Financial Group’s
SIVB,

debt pulled its BBB-rated 10-year bonds as low as 31 cents on the dollar on Friday after subsidiary Silicon Valley Bank was closed by regulators, marking the biggest bank failure since the financial crisis.

The Santa Clara, Calif.–based financial-services company has been reeling in recent days, with both its stock and bond prices hit hard, after it on Thursday disclosed a $1.8 billion loss from a sale of about $21 billion in securities.

Its bond prices lost further ground Friday after the California Department of Financial Protection and Innovation closed Silicon Valley Bank, placing the Federal Deposit Insurance Corp. in control of its assets.

Silicon Valley Bank had an estimated $209 billion in total assets and about $175.4 billion in deposits as of Dec. 31, according to the FDIC.

SVB Financial’s 4.57% bonds due April 2023 traded as low as 31 cents on the dollar on Friday in heavy trading, according to BondCliq. Since the low, the debt traded up to 38.50 cents. A week ago it was fetching 90 cents. Prices on U.S. corporate bonds below 70 cents on the dollar are broadly considered distressed.

Worries about distress at Silicon Valley Bank, and potential risks in the broader distress in the banking system, have weighed on shares and the debt of financial companies.

Bonds in the financial sector were broadly under pressure Friday, including debt issued by Bank of America Corp.
BAC,
-0.97%,
JPMorgan Chase and Co.
JPM,
+2.70%,
Goldman Sachs Group Inc.
GS,
-3.69%,
Morgan Stanley
MS,
-1.56%
and other major banks, according to BondCliq.

Shares of the Invesco KBW Bank ETF
KBWB,
-3.26%
were down 16% on the week through midday Friday, with some investors expressing concern about potential cracks in the financial system following a year of aggressive interest-rate hikes by the Federal Reserve.

Barclays analysts said Friday that they viewed the collapse of Silicon Valley Bank as an “isolated event, but that it still “raises risks of broader distress within the banking system” that could throw cold water on talk of a Fed interest-rate hike in March of 50 basis points vs. 25 basis points.

“Indeed, the possibility of capital losses at other institutions cannot be completely dismissed, with rising policy rates raising banks’ funding costs, more elevated longer-term rates exerting pressure on asset valuations, and potential loan losses related to idiosyncratic credit exposures.”

Shares of SBV Financial were halted Friday, but they are down about 54% on the year, according to FactSet. The S&P 500 index
SPX,
-1.11%
was down about 1.2% Friday afternoon, while the Dow Jones Industrial Average
DJIA,
-0.82%
fell 0.8% and the Nasdaq Composite
COMP,
-1.47%
was 1.7% lower.

Deep Dive: 10 banks that may face trouble in the wake of the SVB Financial Group debacle

Read: Treasury monitoring a few banks ‘very carefully’ amid Silicon Valley Bank’s woes, Yellen says

Silicon Valley Bank branches closed by regulator in biggest bank failure since Washington Mutual

Silicon Valley Bank has been closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (FDIC) has been appointed receiver, becoming the first FDIC-backed institution to fail this year.

The news comes amid a crisis at parent SVB Financial Group
SIVB,
-60.41%,
which lost a record 60% of its value on Thursday, after it disclosed large losses from securities sales and announced a dilutive stock offering along with a profit warning. The stock was halted premarket Friday amid reports the company was seeking a buyer.

The FDIC, which insures deposits of up to $250,000 at eligible banks, said all insured depositors will have full access to their accounts no later than Monday morning. Uninsured depositors will get a receivership certificate and may be entitled to dividends once the FDIC sells the bank’s assets.

The bank had 13 branches in California and Massachusetts and will reopen on Monday. As of Dec. 31, it had about $209 billion in total assets, and about $175.4 billion in deposits.

That makes it the biggest bank failure since Washington Mutual Inc. was brought down during the financial crisis of 2008.

See now: 10 banks that may face trouble in the wake of the SVB Financial Group debacle

“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” said the FDIC. “The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.”

Customers with more than $250,000 in their accounts should contact the FDIC at 1-866-799-0959.

The last FDIC-backed bank to close was Almena State Bank, Almena, Kansas, back in October of 2020, said the FDIC.

The bank’s collapse has come swiftly just days after the parent announced a huge loss on bondholdings after it was caught out by interest rate increases. Some venture-capital firms reportedly told their startup clients to pull their money from the bank, triggering a classic run on the bank.

On Friday, employees were told to “work from home today and until further notice,” the Wall Street Journal reported, citing an email it had obtained.

Silicon Valley Bank is shut down by regulators, FDIC to protect insured deposits

Signage outside Silicon Valley Bank headquarters in Santa Clara, California, US, on Thursday, March 9, 2023.

David Paul Morris | Bloomberg | Getty Images

Silicon Valley Bank has been closed by regulators, which have taken control of the bank’s deposits, the Federal Deposit Insurance Corp. announced Friday.

The California Department of Financial Protection and Innovation closed SVB, and named the FDIC as the receiver. The FDIC in turn has created the Deposit Insurance National Bank of Santa Clara, which now holds the insured deposits from SVB.

The FDIC said in the announcement that insured depositors will have access to their deposits no later than Monday morning. SVB’s branch offices will also reopen at that time, under the control of the regulator.

The FDIC also said SVB’s official checks will continue to clear.

The FDIC’s standard insurance covers up to $250,000 per depositor, per bank. It is unclear exactly how larger accounts or credit lines for companies will be impacted by the closure. The FDIC said it will pay uninsured depositors an advanced dividend within the next week.

As of the end of December, SVB had roughly $209 billion in total assets and $175.4 billion in total deposits, according to the press release. The FDIC it was unclear how much of those deposits were above the insurance limit.

SVB was a major bank for venture-backed companies, which were already under pressure due to higher interest rates and slowdown for initial public offerings.

The closure of SVB would impact not only the deposits, but also credit facilities and other forms of financing. The FDIC said loan customers of SVB should continue to make their payments as normal.

The move represents a rapid downfall for SVB. On Wednesday, the bank announced that it was looking to raise more than $2 billion in additional capital after suffering a $1.8 billion loss on asset sales.

The shares of parent company SVB Financial Group fell 60% on Thursday, and dropped another 60% in premarket trading on Friday before being halted.

CNBC’s David Faber reported Friday morning that the efforts to raise capital had failed and that SVB had pivoted toward a potential sale. However, a rapid outflow of deposits was complicating the sales process.

This is breaking news. Please check back for updates.

Treasury monitoring a few banks ‘very carefully’ amid Silicon Valley Bank’s woes, Yellen says

U.S. Treasury Secretary Janet Yellen said Friday she’s tracking a number of banks as Silicon Valley Bank has faced major problems.

“You mentioned Silicon Valley Bank,” Yellen said, as she responded to a lawmaker while testifying before a House Ways and Means Committee hearing.

“There are recent developments that concern a few banks that I’m monitoring very carefully, and when banks experience financial losses, it is and it should be a matter of concern.”

The stock of Silicon Valley Bank parent company SVB Financial Group
SIVB,
-60.41%
had plunged after the company disclosed large losses from securities sales.

Later Friday, as the committee hearing still was underway, the Federal Deposit Insurance Corporation said Silicon Valley Bank had been closed by a California regulator.

SVB has been seeking a buyer after scrapping a plan to shore up its finances through a stock offering, and as it faced widespread customer withdrawals, according to a Wall Street Journal report published earlier Friday.

Sen. Sherrod Brown, the Ohio Democrat who heads the Senate Banking Committee, is “monitoring the situation closely,” a spokeswoman said Friday.

“The FDIC and other banking regulators are on the job to protect insured depositors and our banking system,” she added.

Billionaire hedge fund manager Bill Ackman had suggested that government intervention could be needed.

“If private capital can’t provide a solution, a highly dilutive government preferred bailout should be considered,” Ackman said on Twitter late Thursday.

U.S. stocks
SPX,
-1.45%

DJIA,
-1.07%

COMP,
-1.76%
were lower Friday, as investors struggled to parse mixed signals in the latest jobs report and monitored Silicon Valley Bank’s troubles.

Now read: Financial-system risks put a smaller March rate hike by Federal Reserve back in play

Also see: SVB extends swoons on bank-run fears and analyst downgrades as it triggers bank-stock losses

Plus: 10 banks that may face trouble in the wake of the SVB Financial Group debacle

European banking stocks sink as Silicon Valley Bank jitters spread

European banking stocks sold off sharply in early trade Friday as jitters surrounding U.S. bank SVB Financial — which plunged 60% Thursday — spread around the world.

It followed an announcement by the tech-focused lender of a capital raise to help offset bond sale losses.

The Euro Stoxx Banks index was on pace for its worst day since June, led by a decline of more-than 8% for Deutsche Bank.

Societe Generale, HSBC, ING Groep and Commerzbank all fell more than 5%.

This is a breaking news story and will be updated shortly.

SVB Financial stock tumbles 22% after hours on reports of funds advising clients to pull money from bank

SVB Financial Group
SIVB,
-60.41%
fell more than 22% in the extended session Thursday as reports surfaced that several funds are advising clients to pull their money from Silicon Valley Bank.

Bloomberg News late Thursday reported that Founders Fund, the San Francisco-based venture-capital fund co-founded by Peter Thiel, has advised companies to do just so. The report cited people familiar with the matter.