Silicon Valley Bank, a commercial bank that prefers to cater to Big Tech companies and Silicon Valley startups, is on the verge of collapse. Its stocks have plunged amid a cash burn, and investors are now advising tech firms to pull all of their money out before it's too late. (UPDATE: The bank has now collapsed and has been taken over by California regulators. A reported 95% of deposits were not insured by FDIC.)
The bank's stocks plunged by 60 percent on Thursday, March 9, after announcing that it was issuing an additional $2.25 billion of shares to bolster its capital position following a significant loss on its investment portfolio.
The share sale will come in three parts. The first, amounting to $1.25 billion, will be in the form of common stock and will be offered to investors. The second, amounting to $500 million, will be in the form of convertible preferred shares. The last, another $500 million, will go directly to private equity firm General Atlantic.
Silicon Valley Bank noted that it needs this $2.25 billion in additional funding to shore up its balance sheet, as it needs to plug a $1.8 billion hole caused by the sale of a $21 billion loss-making bond portfolio, consisting mostly of United States Treasury Securities. The bank's portfolio was yielding an annual average 1.79 percent return, far below the current 10-year Treasuries yield of around 3.9 percent.
The massive sale has spooked investors, notably venture capital firms whose portfolio companies do business with Silicon Valley Bank. They are worried that the attempt to raise over $2 billion in capital might not be enough to keep the bank in the green. (Related: Dr. Doom warns: Perfect storm of recession, debt crisis and inflation to hit markets.)
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Peter Thiel's Founder's Fund has already advised its massive portfolio of Silicon Valley startups that they should withdraw their money from the bank. Other major venture capital firms that have sent out similar advice include Coatue Management, Union Square Ventures and Founder Collective. Canaan, another venture capital firm, advised its portfolio companies to remove their cash on an as-needed basis.
Silicon Valley Bank scrambling to reassure clients to keep money in bank
Despite the warnings from venture capital firms Silicon Valley Bank executives are trying to do everything they can to reassure their clients that the bank won't collapse.
Greg Becker, chief executive officer of SVB Financial Group, the bank's parent company, held a conference call with clients on Thursday, March 9, advising them to "stay calm" amid concerns about the bank's financial position.
The roughly 10-minute call with investors was held at about 11:30 a.m. Pacific Standard Time. Becker asked his bank's clients to continue supporting the bank the way it had supported them over the past 40 years. He went on to reassure them that their money in the bank is safe.
"My ask is just to stay calm, because that's what's important," said Becker. "The last thing we need you to do is panic." He did not provide the conference call attendees with any opportunity to ask questions.
Silicon Valley Bank is a crucial lender for early-stage businesses. The bank has become a partner for nearly half of all venture-backed technology and healthcare companies in the United States that are listed on stock markets in 2022.
Learn more about the state of the American market at MarketCrash.news.
Watch this episode of the "Health Ranger Report" as Mike Adams, the Health Ranger, warns of the coming bank bail-ins that are intended to keep failing banks afloat.
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