Bank closed until Monday
SVB ‘might not be an isolated event’
Shares suspended after tanking by two thirds
Global bond market stable
17.24pm: FDIC takes control of SVB deposits
Silicon Valley Bank has been closed by the California Department of Financial protection and Innovation until Monday, and federal regulators have taken control of its deposits, according to an announcement from the Federal Deposit Insurance Corporation (FDIC).
The FDIC created the Deposit Insurance National Bank of Santa Clara, which now holds the insured deposits from SVB. Insured depositors will be able to access their deposits no later than Monday morning, the agency said.
The FDIC’s standard insurance covers up to $250,000 per depositor, per bank, but it is unclearer how larger accounts will be affected.
Meanwhile, questions are mounting about what this means for other US banks.
Cooler heads, thus far, are saying no.
The US Treasury is watching “a few banks,” according to Treasury Secretary Janey Yellen, but there is no sense of a wider panic.
A Morgan Stanley (NYSE:MS) analyst agrees.
“We want to be very clear here… we do not believe there is a liquidity crunch facing the banking industry… the headwind for the banking industry is that the cost of liquidity is high and rising… This is a headwind for net interest margins, revenue and EPS,” the analyst said.
16.10pm: SVB short seller says US$150bn of deposits are uninsured
Non-retail deposits at Silicon Valley Bank to the tune of US$150bn are uninsured, according to Argonaut Capital, which has a short position on the bank.
SVB’s terms and conditions state that it is insured by the Federal Deposit Insurance Corporation (FDIC), but there are some exceptions.
Wealth management and investment advisory services offered by SVB’s subsidiaries SVB Wealth and SVB Investment Services are not FDIC insured, nor are they insured by any federal government agency.
Argonaut has had a short position on SVB for six months due to the volume of US Treasury bonds on its balance sheet.
Bond prices have fallen significantly in the past year due to skyrocketing interest rates, causing losses on SVB’s balance sheet and putting a stranglehold on liquidity.
“It could only sustain this facade that it was if it could fund those assets to maturity,” said Barry Norris, manager of the VT Argonaut Absolute Return fund.
SVB was unable to see its bonds through to maturity when a bank run forced to bank to sell bonds at a heavily discounted price to fund depositor withdrawals.
15.27pm: Revolut backer Molten Ventures’ shares plummet
Molten Ventures is leading losses on the FTSE 350 index with a 16% plummet to 309.4p, sparking concerns over SVB contagion hitting London-listed tech venture firms.
SVB previously acted as a security agent for Molten Ventures, according to Companies House’s database.
While it is not known what companies are exposed to SVB, or have deposits tied up in the bank, investors are clearly concerned that tech start-ups, SVB’s bread and butter, stand to suffer from the ongoing crisis engulfing the bank.
Molten Ventures also has investments in Cazoo, Trustpilot and Crowdcube.
Proactive has asked Molten Ventures for a comment.
14.50pm: SVB ‘might not be an isolated event’
A double whammy of plummeting bond prices and large-scale deposit withdrawals is creating risk for many US banks, reckons Charles-Henry Monchau, chief investment officer at Syz Bank.
While there doesn’t seem to be panic yet, the crisis befalling SVB “might not be an isolated incident”, Monchau wrote in an email note.
Smaller regional banks may be more exposed to this type of risk, although all banks with balance sheets weighted heavily to government debt investments have been heavily impacted by interest rate rises over the past year.
SVB was forced to sell up to US$21bn in Treasury bonds to satisfy customer deposit withdrawals. The bank sustained heavy losses due to the deflated price of government-issued securities.
Shares have been suspended after falling by more than two thirds in as many days.
14.40pm: SVB for sale
Reuters is reporting that Silicon Valley Bank is looking for a buyer after failing to raise capital through Wednesday’s accounced share sale.
SVB sought up to US$2bn from the market after realising massive losses on its US bond fire sale to fund a large-scale bank run.
Shares in the tech-focused bank have been suspended on Nasdaq due to the liquidity crisis.
14.19pm: SVB shares suspended
Shares in Silicon Valley Bank were suspended on US markets following a 45% fall in pre-market trading following a 60% slump on Thursday
Fears that the crisis at the tech-focused bank might spread led to shares in banks across the globe falling sharply.
Even major US banks were under pressure ahead of the start of trading in New York with JP Morgan and Wells Fargo down around 1%, though Goldman Sachs (NYSE:GS) was faring better.
One fund manager said the shock was greater as SVB was considered to be a strong, well-run bank.
“The Silicon Valley raise got everybody nervous about people’s capital levels and what deposits are doing. A lot of institutional investors don’t feel great about owning certain banks right now,” RJ.Grant, head of trading at Keefe, Bruyette & Woods told Reuters.
“It just gets people freaked out because Silicon Valley, historically has been a very strong, well-run bank. If they’re having issues right now, people are wondering what about other banks that are lesser quality and that don’t have the reputation that Silicon Valley Bank has.”
1.45pm: Global bond market stable amid Silicon Valley Bank fire sale
US long-dated Treasury bonds appear stable on Friday, despite concerns of a widespread sell-off caused by Silicon Valley Bank’s securities fire sale.
SVP disclosed on Wednesday that it has sold up to US21bn in 10-year bonds to shore up its balance sheet, taking nearly US$2bn in realised losses on the chin.
Concerns of market contagion have mounted, with investors worried that other major banks could be forced to capitulate on their government debt investments too.
But even though financial services stocks are getting battered across the globe, debt investors don’t appear worried over a widespread bonds fire sale.
In anything, depressed global equities markets are causing investors to leap into the relative safe haven of government debt (unless you’re a liquidity-strapped bank, that is).
Yields on US 10-years fell 14 basis points to 3.77% overnight. Bond yields have an inverse relationship with their underlying value.
US bonds remain heavily discounted year on year, with soaring interest rates nearly doubling yields in the past 12 months.
In the UK, yields on 10-year gilts fell 1.7% to 3.72%, indicating concurrent strength on both sides of the Atlantic.
10-year gilt yields are up nearly 150% year on year, driving not only by rising interest rates, but also the ill-fated Kwarteng-Truss mini-budget calamity.
German 10-year bund yields fell 14 basis points to 2.5% overnight.