Silicon Valley Bank's Share Slump Rocks Financial Stocks

Investors Panic as Key Tech Lender Announces $2.25bn Share Sale

Shares in Silicon Valley Bank (SVB), a critical lender to technology startups, took a nosedive on Thursday, following the bank's announcement of a $2.25bn share sale to reinforce its finances. This news caused investors to move to withdraw their deposits, leading to a slide in shares of banks worldwide. The four largest US banks, including JP Morgan and Wells Fargo, saw their market value drop by more than $50bn. SVB saw its most significant one-day drop on record as its shares plunged by over 60% and lost another 20% in after-hours trade.

SVB is the banking partner for almost half of US venture-backed technology and healthcare firms that listed on stock markets last year, making it a crucial lender for early-stage businesses. However, some start-ups who have money deposited have been advised to withdraw their funds, creating more problems for the bank. Hannah Chelkowski, founder of Blank Ventures, a fund that invests in financial technology, described the situation as "wild" and "brutal" and is advising companies in her portfolio to withdraw funds.

The firm launched the share sale after losing around $1.8bn when it offloaded a portfolio of assets, mainly US Treasuries. The wider market has also seen concerns about the value of bonds held by banks, as rising interest rates make those bonds less valuable. Central banks around the world, including the US Federal Reserve and the Bank of England, have sharply increased interest rates as they try to curb inflation. Banks tend to hold large portfolios of bonds, and as a result, are sitting on significant potential losses. The falls in the value of bonds held by banks are not necessarily a problem unless they are forced to sell them.

However, if lenders have to sell the bonds they hold at a loss, it could have an impact on their profits. Ray Wang, founder and CEO of Silicon Valley-based consultancy Constellation Research, said, "the banks are casualties of the hike in interest rates… They bet wrong." SVB's woes could cause further problems for other financial institutions, as the bank's role as a key lender to start-ups and the tech industry could make it a bellwether for the wider market.

In conclusion, SVB's share slump has rocked financial stocks, raising concerns about the value of bonds held by banks worldwide. The situation at SVB, a critical lender to technology startups, is causing investors to panic, leading to a slide in bank shares worldwide. The announcement of a $2.25bn share sale by SVB to reinforce its finances has also led to the withdrawal of deposits by some start-ups, creating more problems for the bank. The wider market has also seen concerns about the value of bonds held by banks as interest rates rise, making those bonds less valuable. While the falls in the value of bonds held by banks are not necessarily a problem unless they are forced to sell them, SVB's woes could cause further problems for other financial institutions, making it a bellwether for the wider market.

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