Later in the day, however, the Federal Deposit Insurance Corporation (FDIC) then announced that SVB was shut down and placed under its receivership. SVB scrambled on Friday to find alternative funding, including through a sale of the company. This spooked investors such as General Atlantic that SVB had lined up for the stock sale, and the capital raising effort collapsed late on Thursday. Some SVB clients pulled their money from the bank on the advice of venture capital firms such as Peter Thiel’s Founders Fund, Reuters reported. Its shares ended trading on the day down 60%, as investors fretted that the deposit withdrawals might push it to raise even more capital. SVB announced on Thursday that it would sell $2.25bn in common equity and preferred convertible stock to fill its funding hole. This forced SVB to recognize a $1.8bn loss, which it needed to fill through a capital raise. The portfolio was yielding it an average 1.79%, far below the current 10-year Treasury yield of about 3.9%. To fund the redemptions, on Wednesday Silicon Valley Bank sold a $21bn bond portfolio consisting mostly of US Treasuries. This culminated in Silicon Valley Bank looking for ways this week to meet its customers’ withdrawals. Some Silicon Valley Bank clients face cash crunchĪs higher interest rates caused the market for initial public offerings to shut down for many startups and made private fundraising more costly, some Silicon Valley Bank clients started pulling money out to meet their liquidity needs. This weighed on technology startups – the primary clients of Silicon Valley Bank – because it made their investors more risk-averse. Investors have less appetite for risk when the money available to them becomes expensive due to the higher rates. The Federal Reserve has been raising interest rates from their record-low levels since last year in its bid to fight inflation.
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