Just how big is Silicon Valley Bank
Silicon Valley Bank (NASDAQ: SIVB) stock did not open for trading Friday morning after regulators closed the bank. The troubled institution was seeking a sale of itself but a major bank-run by customers squashed any interest.
This marks the largest bank failure in the US since the global financial crisis. This begs the question just how big is the bank and why should investors care.
What happened to Silicon Valley Bank?
Simply put, SVB lost nearly $2 billion in US treasuries and mortgage-backed securities due to soaring interest rates. Yes, that same mortgage-backed securities that caused the first financial crisis continues to dominate financial and banking headlines.
So, SVB hoped to tap the public market to boost up its books. It planned to sell $1.25 billion of its common stock to the public, another half a billion worth of stock to a private equity firm called General Atlantic and another $500 million in convertible preferred shares.
Not an ideal position to be in, that’s for sure.
But SVB CEO Greg Becker said on a Zoom call to customers “the last thing we need you to do is panic.”
When someone tells you not to panic, your first reaction is to… panic. Let’s see if this is justified or not.
How big is Silicon Valley Bank?
SVB has been a cornerstone of the ecosystem for technology companies and life science companies for 40 years, Plexco Capital Founder Lo Toney said on CNBC’s “Halftime Report.” Almost half of all venture capital dollars at some point have “flown through” SVB.
Not only does Silicon Valley Bank, or did Silicon Valley Bank, provide services to tech startups, they provide financial services to big tech, to venture capital firms, and even the individual GPs and high net worth individuals that often made their money from tech would use Silicon Valley Bank in multiple ways.
As an example, he continued, general partners at venture capital funds have to put a percentage of the funds they raise personally in a bank like SVB. The bank would often provide a line of credit to these individuals to finance their own partnership commitment.
That said, standard FDIC insurance will cover up to $250,000 per depositor. The type of client that SVB accepts for the most part holds account with at least an extra zero in that figure.
In many instances, there were firms that had millions of dollars that were deposited and now those funds are at risk.