European banking stocks experienced a significant decline on Friday due to concerns over SVB Financial, a U.S. bank that suffered a 60% drop in value on Thursday. This news caused a ripple effect in the global market, with many banks experiencing losses.
At the beginning of trading on Friday, European banking stocks experienced a significant decline due to concerns over SVB Financial, a U.S. bank that suffered a steep 60% drop in value on Thursday. The global market was affected by this news, which was caused by the tech-focused lender’s announcement of a capital raise to offset losses from bond sales.
The Euro Stoxx Banks index was heading towards its worst day since June, with Deutsche Bank leading the decline with a drop of over 8%. Societe Generale, HSBC, ING Groep, and Commerzbank also experienced losses of more than 5%.
Silicon Valley Bank primarily serves startup firms, especially venture-backed tech and life sciences companies in the United States. The 40-year-old bank had to sell off $21 billion worth of holdings at a loss of $1.8 billion and raise $500 million from venture firm General Atlantic, according to a financial update released on Wednesday. This was due to the forced sale of its securities on Thursday.
In a letter from CEO Greg Becker on Wednesday, the bank announced that it had sold “substantially all” of its available-for-sale securities and was aiming to raise $2.25 billion through common equity and convertible preferred shares.
Over the past year, the U.S. Federal Reserve has increased interest rates significantly, which can result in a decrease in the value of long-dated bonds. SVB plans to use the proceeds from its securities sales to invest in shorter-term assets.
Billionaire investor and CEO of Pershing Square, Bill Ackman, tweeted early on Friday warning that if SVB Financial were to fail, it could have a devastating impact on the economy. VC-backed companies rely on SVB for loans and to hold their operating cash. If private capital fails to provide a solution, Ackman suggested that a highly dilutive government preferred bailout should be considered.
The potential failure of SVB Financial has raised concerns over the impact it could have on the economy, particularly on VC-backed companies that rely on the bank for loans and holding their operating cash. The forced sale of securities and plans to raise capital have created uncertainty in the market. With the potential for long-term damage, investors are suggesting a government bailout as a solution.