On Thursday, there was a significant drop in the value of the banking sector share. This resulted after a share of Silicon Valley Bank (NASDAQ: SIVB) plummeted by 60%.
Moreover, some other developments also played their role in sending the shares of the banking sector down.
For instance, the declaration of the sale of shares and the resolution of Silvergate Bank (NYSE: SI) to cease its operations.
The bank index of the S&P 500 experienced a significant decline of more than 6.5% on a single day.
This marks the most significant decline in over two years.
SVB stock price further declined by 40% on Friday. As the result, the bank has suffered a loss of $80 billion.
The SIVB experienced a remarkable decline, causing it to reach a value of less than $100 per share.
In addition to that, on Friday, at the press-time SVB’s share was exchanging hands at $60 per share.
This Silicon Valley Bank has never experienced such lows in terms of its share price.
Just a year ago, the share of SVB was being traded at $600.
As per the CNBC findings, the top-tier management of the Bank is thinking about selling it after the bank failed to gather significant funds to support its operations.
Experts Have Told Why SVB’s Share Price Dropped?
The bank’s downfall occurred after its announcement on Wednesday regarding its intention to initiate a $1.75 billion share offering.
The main reason behind this strategy was to strengthen its financial position.
The bank is attempting to cover a shortfall of $1.8 billion that was caused by losses in its bond portfolio worth $21 billion, primarily consisting of U.S. Treasury bonds.
The bank’s portfolio was generating an average return of 1.79%, while the 10-year Treasury yield was approximately 3.9%.
The shareholders of the bank were concerned about whether the sale of shares would provide sufficient funding for the bank.
Amid the scarcity of venture capital financing and the challenges faced by the technology startups that the SVB serves, the shareholders were worried.
The primary concerns of the investors of the bank were about whether the sale of shares would provide sufficient funding for the bank.
On the other side Fed’s announcement to increase the interest rate for an extended period also pressurized the global stock and bond market.
SVB stated that due to high-interest rates and increased spending by their clients, they are investing the funds generated from the sale of bonds in short-term assets.
Mike Mayo a senior financial analyst at Wells Fargo, said that SVB’s SVB’s funds diversification choice was immensely poor and substandard.
In a time, when an economic crisis is about to enter the market you should avoid investing in startups.
Silvergate Plans to Cease its Operations Gradually
As SVB senior management is thinking of selling the bank. Silvergate has also announced that the company is shrinking its operations.
The bank is listed on NYSE as SI is also struggling at the moment. The statement suggests that Silvergate Bank has decided to shut down its operations.
The bank will further move forward with voluntary liquidation due to the substantial amount of withdrawals it has experienced in recent months.
The bank has stated that its strategy for liquidation includes repaying all funds in full.
In addition to that and it is also actively working to settle any outstanding claims.
The reason behind this vulnerable financial situation is the historic volatility of the crypto market back in 2022.
Silvergate was most actively engaged in being a payment gateway for some of the biggest crypto platforms.
The demise of FTX back in November 2022 was the turning point in sending Silvergate downward.
The bank’s fourth-quarter report shows that its digital assets deposits monumentally decreased to $3.8 billion from $11.9 billion.
Moreover, the bank’s legal and operation woes have forced the bank to delay publishing its financial report.
As the things stand the banking sector is not a lucrative sector to invest in.