- Bank stocks plunged on Thursday as investors assessed the potential fallout from the implosions of Silicon Valley Bank and Silvergate Capital.
- SVB Financial surprised investors with lowered guidance, a $2.3 billion capital raise, and a massive $1.8 billion loss from its bond portfolio.
- “This is sending shock waves through the financials with the regional bank ETF lower by 8%,” NYSE’s Michael Reinking said.
Mega-cap banks like JPMorgan, Bank of America, and Wells Fargo all fell more than 5%, while the regional banking sector sank by as much as 8%. The decline picked up steam throughout the trading day as shares of SVB Financial plunged as much as 62%.
The implosion at SVB Financial happened after the company lowered its guidance, announced a $2.3 billion capital raise, and said it lost $1.8 billion as it sold off more than $20 billion worth of US Treasuries that it bought when interest rates were near record lows. The multi-pronged announcement caught investors by surprise.
“Part of the problem is Silicon Valley [Bank] had been telling investors up until a couple weeks ago that their guidance was intact. There was no reason to believe this announcement was going to hit,” Keefe, Bruyette & Woods’ head of equity trading RJ Grant told Insider on Thursday.
“It’s a little bit unnerving on a couple different levels: one at the micro level with their management, and two at the macro level, like if they weren’t being dishonest, this [negative] deposit flows happened very suddenly,” Grant said.
The surprising announcement at SVB Financial, which included the fact that an ongoing slowdown in private markets and venture capital had weakened its deposit levels, drove down other California-based banks like PacWest Bancorp and First Republic.
PacWest Bancorp has a healthy venture deposit business and saw its stock drop by more than 20%, while First Republic, which is another growth-oriented bank, saw a decline of more than 15%.
Piling onto the mess in the banking sector on Thursday is the development that crypto-oriented bank Silvergate Capital would wind down its operations. Silvergate fell by more then 40%, while Signature Bank, which has some exposure to the crypto industry, lost more than 11%.
Amid the sharp decline in the banking sector on Thursday, investors are getting more and more risk-off as fears of potential contagion in the sector spread.
“I was around for the financial crisis. Generally what happens is you get one big shock that’s really unexpected, and then people say ‘oh my god, that’s a really good company. If something’s going bad there, then let’s just shoot first and ask questions later across the broader space,'” Grant said.
NYSE senior market strategist Michael Reinking shared similar sentiments, telling Insider that the sharp decline at Silicon Valley Bank was “sending shock waves through the financials.”
“This adds to concerns of higher deposit costs, weakening loan demand, potentially weakening credit cycle and weakness in commercial real estate markets,” he said.