US banking regulators take control of Silicon Valley Bank – 03/10/2023 – Market

US regulators took control of Silicon Valley Bank on Friday after a wave of deposit outflows and a slump in its share price led to uncertainty over the technology-focused lender’s future.

It is the second-largest bank failure in US history, after the collapse of Washington Mutual in 2008.

The bank had given up on its efforts to raise $2.25 billion in new financing to cover losses in its bond portfolio earlier in the day and was looking for a buyer to bail it out, according to people with knowledge of the matter.

Shares in SVB were suspended in early trading on the New York Nasdaq exchange as its management sought to reassure investors.

The new capital from the share sale would have helped cover the roughly $1.8 billion in losses that SVB incurred on the sale of approximately $21 billion in bonds initiated to cover customers who withdrew deposits from the bank.

He planned to sell $1.25 billion of his common stock to investors and another $500 million in mandatory convertible preferred stock, which dilutes existing shareholders a little less.

SVB did not immediately respond to a request for comment. On Friday, the company asked its employees to work from home as the bank’s management team, led by chief executive Greg Becker, discussed possible next steps, according to two people familiar with the matter.

The Federal Deposit Insurance Corporation said it would hold all SVB deposits for later disposal. The regulator has historically sought to merge failed creditors with a larger, more stable institution. Washington Mutual, for example, was sold to JPMorgan Chase.

Bank failures have been extremely rare in the United States in recent years: there were none in 2020 and 2021, and the last time there were more than ten was in 2014.

The banking group’s woes stem from a decision made at the height of the tech boom to park $91 billion of its deposits in long-term securities, such as mortgage and U.S. Treasury bonds, which were considered safe but are now worth $15. billions less than when the SVB bought them after the Federal Reserve aggressively raised interest rates.

On Thursday (9), SVB and its underwriter Goldman Sachs rushed to complete the share offering. While Goldman secured enough interest in the convertible bond business by mid-afternoon, the sale of common stock was struggling with falling SVB shares, according to a person briefed on the matter.

Private equity firm General Atlantic has pledged to provide $500 million in stock if the offering goes through. Goldman Sachs briefly worked to bring together a broader group of private equity investors, but the plan fell through as SVB shares fell sharply, according to informed sources.

Bank shares posted their biggest decline on Thursday, wiping $9.6 billion from the banking group’s market capitalization. Shares in SVB fell more than 60% in premarket trading on Friday before the suspension was announced.

As of Friday morning, the sale of stocks and convertible bonds had been postponed, according to people familiar with the matter.

The ramifications of the SVB problems will be felt far and wide. The lender is the banking partner of half of US venture capital-backed technology and life sciences companies, and is a major player in providing $10 trillion of credit lines to the private equity sector.

Its customers became increasingly fearful of the bank’s financial position, with some start-ups worrying enough to withdraw their money.

Some venture capital groups told the Financial Times they were concerned about the fall in the value of SVB shares and were advising some of its portfolio companies to consider withdrawing a portion of their deposits from the lender. However, others said they weren’t giving this advice to their portfolio companies.

“The SVB’s 40 years of business relationships supporting Silicon Valley evaporated in 14 hours,” said a senior executive at a multibillion-dollar venture capital fund. He said his company had warned the start-ups it invests in to be “balanced” and not promote a run on SVB on Thursday.

The decline in the SVB, triggered by fears over interest rate losses, sent contagion to financial stocks more broadly, drawing attention to the potential effect that rising interest rates could have on net interest income in other banks.

The four largest US banks – JPMorgan Chase, Citigroup, Wells Fargo and Bank of America – also lost $52.4 billion in market value in Thursday’s trading.

Some smaller creditors, in particular those in California, fell sharply in early Friday trading. PacWest Bancorp fell as much as 25%, while SVB competitor First Republic fell more than 40% before recouping most of its losses.