Here’s how Silicon Valley Bank lost more than $80 billion in 24 hours

Silicon Valley Bank (SVB), which is known for lending funds to tech startups like Pinterest Inc, Shopify Inc., and CrowdStrike Holdings Inc, has kicked off a perfect storm in the market. The 16th largest bank in the US failed following a run on deposits after its parent company's share price crashed a record 60 per cent on Thursday.

Trading of SVB Financial Group's stock was halted early Friday after the shares fell sharply again in premarket trading. 

The crisis at SVB kicked off earlier this week when the startup-focused bank launched a share sale to shore up its balance sheet after selling a portfolio consisting mostly of US Treasuries at a loss. 

On Wednesday, the SVB Financial Group announced that it was raising $2.25 billion in a share sale. Besides, it said it had sold $21 billion worth of securities from its portfolio. The bank offloaded securities to raise much-needed cash as it struggled with falling deposits. 

Explaining the turn of events, Brian O'Connor, a business analyst who previously worked with Deloitte, said SVB bought $80 billion in mortgage-backed securities last year, which could be the reason behind the collapse.  

Also read: SVB crisis: Vijay Shekhar Sharma says Silicon Valley Bank not a stakeholder in Paytm

In 2021, during the funding boom, SVB amassed large deposits — $189 billion, which later peaked at a massive $198 billion. It later invested heavily in bonds, which were being issued in a low-interest rate scenario. SVB’s balance sheet for 2022-end showed $91.3 billion of securities.

The startup-focused bank had $209 billion in total assets and about $175.4 billion in total deposits, as of December 2022. O'Connor added that SVB’s business was going as usual till the US government changed its interest rates.  

SVB, which has been incurring losses after its clients started pulling money out to meet their liquidity needs amid recession fears and challenging market conditions, announced on Wednesday it had suffered a tax loss of roughly $1.8 billion. On Wednesday, the SVB Financial Group announced that it was raising $2.25 billion in a share sale in addition to having sold $21 billion worth of securities from its portfolio. 

The portfolio was yielding an average of 1.79 per cent, far below the current 10-year Treasury yield of about 3.9 per cent. This forced SVB to recognise a $1.8 billion loss, which it needed to fill through a capital raise, according to Reuters. 

O'Connor explained that SVB CEO Greg Becker thought this to be a good idea to generate funds to avoid the crisis, but investors panicked which led to a bloodbath in the market.  

Hours after SVB decided to sell its stocks, venture capital firm Founders Fund advised companies it backed to withdraw money from SVB, Bloomberg reported. Some founders moved their money from SVB to other firms, including Brex and First Republic.  

Peter Thiel’s Founders Fund, Coatue Management, Union Square Ventures and Founder Collective also asked their startups to pull their cash from the bank.  

At the close of business on March 9, the bank had a negative cash balance of $958 million. The next day, the bank was closed by the California DFPI and placed into FDIC receivership, marking the biggest failure of a US bank since the 2008 financial crisis.