SVB exploring sale as crisis triggers global banking rout

March 10 (Reuters) – SVB Financial Group (SIVB.O) is exploring options, including a sale, after its efforts to raise capital through a stock sale failed, sources familiar with the matter said on Friday, as a crisis at the tech-heavy lender rippled through global markets and hit banking stocks.

Shares of SVB were halted on Friday after tumbling as much as 66% in premarket trading.

SVB, which does business as Silicon Valley Bank, was not immediately available for comment.

“SVB is undergoing a series of conversations that have not been concluded yet to determine next steps for the company,” it wrote in a memo to employees Friday morning seen by Reuters.

“We request all employees work from home today and until further notice, except essential and branch employees. More information will be communicated as soon as it is available.”

Treasury Secretary Janet Yellen told lawmakers on Capitol Hill Friday the department was aware of recent developments and was monitoring the situation, calling it “a matter of concern” when banks experience losses, according to CNBC.

U.S. regulators were observed arriving at the bank’s California offices on Friday, Bloomberg News reported.

The brutal rout in SVB’s stock which began on Thursday spilled over into other U.S. and European banks, with the episode spreading concern about hidden risks in the sector and its vulnerability to the rising cost of money.

The S&P 500 banks index (.SPXBK) dropped 0.7% on Friday after a 6.6% decline on Thursday, while the KBW Regional Banking index (.KRX) was down 2.2%. Both were well off earlier lows.

Europe’s STOXX banking index (.SX7P) fell almost 5%, set for its biggest one-day slide since March 2022, with declines for most major lenders, including HSBC (HSBA.L), down 5.7%, and Deutsche Bank (DBKGn.DE), down 8%.

The problems at SVB underscore how a campaign by the U.S. Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market.

“Silicon Valley Bank is shedding light on vulnerabilities across the US banking sector, primarily in the bond holdings that many large institutions hold,” said Karl Schamotta, Chief Market Strategist at Corpay.

“Investors are fearing a repeat of 2008-style sort of dynamics, and this sell-off in the banking sector has raised fears of systemic risk and it has raised the expectation that the Federal Reserve will step in to provide some accommodation if things worsen.”

Bank stocks weighed on the overall U.S. stock market with the S&P 500 (.SPX) down 0.7%.

“The current liquidity run on Silicon Valley Bank is having a knock-on effect on the wider banking system,” said Rick Seehra, Prudential Lead at Bovill.

TECH UNDER PRESSURE

The technology sector has been hit hard in the past few months and stress has appeared in other corners of the market as rates rise.

Crypto-focused bank Silvergate Capital Corp (SI.N) said on Wednesday it planned to wind down operations and voluntarily liquidate after it was hit with losses following the dramatic collapse of crypto exchange FTX.

Silvergate shares rebounded Friday to $3.04 after a sharp drop in the prior session. They had traded above $100 a share a year ago.

The crisis at SVB started earlier this week when the bank, which lends heavily to tech startups, launched a share sale to shore up its balance sheet after selling a portfolio consisting mostly of U.S. Treasuries at a loss.

Sources familiar with the situation said on Thursday that some startups had advised their founders to pull out their money from SVB as a precautionary measure.

Short sellers in SVB
have profited by $717 million since Wednesday’s close, according to analytics firm Ortex.

On Friday, the U.S. economy added jobs at a solid clip in February, likely ensuring that the Federal Reserve will raise interest rates for longer.

Banks typically invest heavily in government bonds, in particular those of their home country. Rising interest rates have caused the price of such bonds to fall, feeding investor concerns that other banks might also be vulnerable.

UNREALIZED LOSSES

Earlier this month, the Federal Deposit Insurance Corp said U.S. banks faced a total of about $620 billion in unrealized losses on their securities holdings at the end of 2022.

But banking experts said SVB’s issues were unique and the worries about the broader sector were not warranted.

“The sector’s knee-jerk reaction is understandable, but likely overdone,” said Erika Najarian, bank analyst at UBS Securities in New York.

“While the lion’s share of investors appreciated the uniqueness of SIVB’s situation, investor concerns over deposit outflow and mix shift are still heightened.”

Some banks felt the need to reassure the market, issuing statements of the kind not seen since the financial crisis. Germany’s Commerzbank, for example, played down any threat from SVB, saying it did not see “a corresponding risk for us”.

“The market is treating this as a potential contagion risk,” said Antoine Bouvet, senior rates strategist at ING in London.

Global borrowing costs have risen at the fastest pace in decades over the last year as the Federal Reserve lifted U.S. rates by 450 basis points from near zero, while the European Central Bank hiked the euro zone’s by 300 bps.

Writing By John O’Donnell, Noor Zainab Hussain and Paritosh Bansal; Additional reporting by Niket Nishant, Emma-Victoria Farr, Pete Schroeder, Jo Mason, Marc Jones, Iain Withers and Yoruk Bahceli; Editing by Toby Chopra and Anna Driver

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