What’s going on at Silicon Valley Bank and why is it shaking UK banking stocks?

Silicon Valley Bank (SVB) has built its reputation lending to some of the world’s most innovate start-ups and investors. But the Nasdaq-listed bank has now been rocked by what some fear could turn into a very old-fashioned bank run. 

Shares in the firm have plunged more than 60 per cent in two days and jitters have spread across the banking sector to wiped billions from the value of US and European lenders this morning.

Shares in the firm were halted on Friday and CNBC has now reported the firm is looking to sell itself.

But what has caused the crisis at SVB?

The start-up ecosystem which Silicon Valley Bank serves has been hammered by soaring inflation and rate hikes in the past 12 months, with tech firms suffering sharp valuation haircuts and VCs writing off billions of dollars of value from their portfolios.

That past year cast an unsettling backdrop for the bank when it announced on Wednesday that it had sold off a $21bn (£17.4) loss-making bond portfolio and would launch a $1.75bn share sale to plug a $1.8bn hole left by the sale.

Panic ensued and the firm’s share price has now plunged a monumental 69 per cent since Wednesday, sparking fears over its stability among its start-up client base.

Some top venture funds have reportedly been advising clients to yank their funds from the bank as quickly as possible, fuelling the fears of a bank run.

The bank’s UK subsidiary, SVB UK, moved to reassure its customers it was a “standalone independent UK regulated bank.”

“As a reminder, Silicon Valley Bank UK is a standalone entity with its own balance sheet and governance structure,” Erin Platts, CEO and Head of EMEA, said in a statement.

“SVB has supported investors and innovators for 40 years and we have been so humbled with the consistent drum of support coming from our UK investor and founder community in last few days. We appreciate that this is a concerning time for our clients so we are working tirelessly to support them and give more context”

Startup at SVB – UK ?

UK balance sheet is ring-fenced, liquidity seems OK, a lot of the portfolio (anecdotally told 60%?) locked into term loans.

My current thinking is (a) low risk of “bust” (b) risk of BoE PRA “freeze”.

SVB unlikely to consider releasing any funds early.

— Fred Destin (@fdestin)

Jitters over SVB have spread

The fears has sent shockwaves across the global banking sector today and wiped billions from the value of Wall Streets big lenders.

Shares in JP Morgan have tumbled nearly five per cent since Thursday morning, while Bank of America is down 5.4 per cent, Goldman Sachs over three per cent and Citi down around 3.8 per cent.

The tremors have now rippled across the Atlantic and hit banking stocks in the UK and Europe. HSBC, Natwest, Lloyds Banking Group and Barclays all falling sharply this morning.

The Euro Stoxx Banks index was set for its worst day since June after plummeting over four per cent by the early afternoon, led by a slump of over seven per cent for Deutsche Bank.

As AJ Bell investment director Russ Mould writes today, in a heavily interconnected banking industry “it’s not so easy to compartmentalise these sorts of events which often hint at vulnerabilities in the wider system”.

“Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income holdings,” he added.

Why SVB crash has sparked stability fears

Some banking analysts have looked to pour cold water on the fears of a full crisis at SVB, however. 

JP Morgan’s banking team describe SVB’s cash raise earlier in the week as a “very prudent strategy” and say they would by buyers at what has become a “highly attractive valuation”.

“SVB is a world class and highly valuable global franchise and the option to purchase the shares below TV we believe more than adequately compensates investors for the risk being taken,” they wrote in a note today.

JPMorgan’s banking analysts think the panic around “world class” Silicon Valley Bank is overdone. “We would be buyers of SIVB shares at this highly attractive valuation.” pic.twitter.com/9Ro9SJTpvf

— Robin Wigglesworth (@RobinWigg)