[Breaking news update, published at 12 pm ET]
Silicon Valley Bank collapsed on Friday morning after a staggering 48 hours in which it raised fears of a collapse in the banking sector.
California regulators have appointed the Federal Deposit Insurance Corporation as receiver.
[Original story follows below]
Financial group SVB is reportedly considering a sale after selling off billions of dollars in assets to make its customers whole and wreaking havoc on Wall Street this week.
Several news outlets, citing people familiar with the matter, reported that the financially troubled bank was considering a possible sale to a larger institution.
SVB did not immediately respond to CNN’s request for comment.
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Shares of SVB (SIVB) were halted on Friday morning after falling more than 60% in premarket trading. The stock fell 60% on Thursday after the bank said it had to sell a portfolio of US Treasuries and $1.75bn of shares at a loss to cover rapidly declining customer deposits – making basically facing a run on the bank.
Several other bank stocks were halted on Friday, including First Republic, PacWest Bancorp and Signature Bank.
SVB, a relatively unknown bank outside of Silicon Valley, lends to high-risk tech startups that have recently been hit by rising interest rates and dwindling venture capital.
The bank partners with nearly half of all venture capital-backed tech and healthcare companies in the United States, many of which have withdrawn deposits from the bank as interest rates rise raised fears that the bank could not get all the money from its customers. if they withdrew their deposits en masse.
On Thursday, as bank stocks around the world fell in response to the crisis at SVB, fears of contagion spread to Wall Street. Hedge fund manager Bill Ackman compared SVB’s situation to the final days of Bear Stearns, the first bank to collapse at the onset of the 2007-2008 global financial crisis.
“The risk of failure and deposit losses here is that the next worst capitalized bank will run and fail and the dominoes keep falling,” Ackman wrote in a series of tweets.
By Friday, the panic seemed to have subsided. Bank stocks remained largely down, but stable.
Wells Fargo senior banking analyst Mike Mayo said the crisis at SVB could be “an idiosyncratic situation”.
“It’s night and day compared to the global financial crisis of 15 years ago,” he told CNN’s Julia Chatterly on Friday. At the time, he says, “banks were taking excessive risks and people thought everything was fine. Now everyone is concerned, but below the surface the banks are more resilient than they have been in a generation.
Rate hikes take a bite
SVB’s sudden drop reflected other risky bets that were exposed during last year’s market turmoil.
Crypto-specialty lender Silvergate said on Wednesday it was winding down operations and liquidating the bank after it was financially hit by the digital asset turmoil. Signature Bank, another crypto-enabled lender, was hit hard by the bank’s sale, with shares falling 30% before being halted for volatility on Friday.
“SVB’s institutional challenges reflect a larger and more widespread systemic problem: the banking sector is sitting on a ton of low-yielding assets that, thanks to the last year of rate hikes, are now well under water – and fall apart,” wrote Konrad Alt, co-founder of the Klaros Group.
Alt estimated that the rate hikes had “effectively wiped out about 28% of all banking sector capital by the end of 2022.”
When interest rates were close to zero, banks stocked up on long-term, low-risk Treasuries. But as the Fed raises interest rates to fight inflation, the value of these assets has fallen, leaving banks sitting on unrealized losses.
The Treasury Department told CNN on Friday it was monitoring the situation as financial pressures on Silicon Valley Bank’s parent company raised concerns about the broader health of U.S. banks.
“The Treasury is aware of recent developments. The Department will remain in contact with regulators as appropriate,” a Treasury spokesperson said in a statement.
– CNN’s Matt Egan contributed to this report