SVB Plunged 60% - How to View Its Sale and Bank Sector?
Powerful, historically well-run $SVB Financial Group(SIVB)$ plunged more than 60%, and $9.4 bln evaporated on Thursday.
1. Bank sector took a hit on Thursday
Other banks were also affected and fell dramatically.
$First Republic Bank(FRC)$ , a San Francisco-based bank, sank more than 16.5%, becoming the second-biggest decliner in the S&P 500 index.
$Zions(ZION)$ dropped more than 12% and $SPDR S&P Regional Banking ETF(KRE)$ slid 8% after hitting its lowest point since January 2021.
Major US banks were also hit, with $Wells Fargo(WFC)$ down 6%, $JPMorgan Chase(JPM)$ down 5.4%, $Bank of America(BAC)$ 6% lower and Citigroup Inc 4% lower.
2. What triggered the sell-off?
To cope with cash burn caused by higher deposit rates and an expansion in lending activities, $SVB Financial Group(SIVB)$ announced the sale of loss-making US Treasuries and stocks to shore up its balance sheet.
1) Sale of US treasuries would cause $1.8 bln losses
Silicon Valley Bank would lose $1.8 billion in the sale of$21 bln US treasuries and mortgage-backed securities.
2) Sale of $2.25 billion stocks to raise money
In addition, the company sought to raise $2.25 billion through the sale of common and preferred stock, which was seen by Wall Street as a panic sell-off of assets and a violent dilution of equity.
The announcement should have been a general press release to improve the company's balance sheet. However, the timing is so wrong.
When the news of the cryptocurrency bank crash was still rolling on TV, Silicon Valley Bank with a 40-year history announced that it had incurred huge losses and needed financing.
This will make the market speculate whether the big bank is suffering from a liquidity crisis, so it is desperate to raise money to get out of trouble.
3. Why did SVB need financing?
SVB made wrong portfolio arrangement when it had abundant capital. Its cash-rich customers - start-up companies - also lack liquidity due to rate hikes.
Back in pandemic period, SVB invested $91 billion of its deposits in long-term bonds such as US Treasuries.
These bonds were originally very safe, but then the Fed raised interest rates one after another and 10Y Treasury yields roared to 3.9%.The bonds in SVB's hands depreciated significantly and losses were severe.
Conclusion
The market's greatest fear is that the bursting of the tech bubble will be transmitted to the US financial system.
But some investors think that the market is over-reacting to the news. It might be a chance to bottom some bank stocks.
How do you think of the bank crises of SVB and Silvergate?
Are there more risks ahead?
Or it's a chance to bottom bank stocks?
Leave your comments to win tiger coins~
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🌟🌟🌟The collapse of SVB and Silvergate has caused a seismic effect right across the global stock market. Fear is contagious and the investors are nervous that this collapse may cause more banks especially the smaller regional banks to fall too.
However the good news is that the US authorities are now taking action to shore up deposits in SVB and try to stem any broader financial fallout with a focus on the venture capital sector and regional banks. Details are still being worked out.
SVB's collapse is the largest bank to collapse since 2008. After 40 years of providing capital for start ups, it took just 2 days to unravel when there was a bank run caused by the massive withdrawal of funds.
I view this as a great opportunity to buy quality stocks selling below its intrinsic value like $Bank of America(BAC)$
Its share price has dropped 11% in the last 5 days. When there is fear in the market it's time to be greedy.
@Tiger_chat
More risk ahead as some banks do not know how to invest and diversify, like the SVB which had a wrong portfolio arrangement. Better do an audit of all your bank accounts and get out of those banks that do not care about their customers and shareholders! [Anger]
@LMSunshine @Mrzorro @Aqa @Fenger1188 @GoodLife99 @rL @SirBahamut @HelenJanet @pekss @Korer @JC888 @melson
$SVB Financial Group(SIVB)$
$Signature Bank(SBNY)$
$Silvergate Capital(SI)$
call for yours guys @Viv22 @LMSunshine @KYHBKO @GoodLife99 @Universe宇宙 @Tigress02 @kungpao @wine18 @cindyft @Xian789 @MTok
However, fear is contagious and investors can get jittery in the short run. If the banks you are vested in are well capitalised, this may be a good opportunity to load up more shares in tranches. Let’s not forget that US authorities have stepped in to restore confidence and try to prevent another fallout.
got to wait for stabilise before any buy.