European bank stocks traded sharply lower in early trading on Friday as panic spread around the world over US bank SVB Financial, which plunged 60% on Thursday.
That followed the tech-focused lender’s announcement that it would raise capital to help offset losses on the bond sale.
The Euro Stoxx Banks index was on pace for its worst day since June, falling more than 8%. Deutsche Bank. General society, HSBC, ING Group and Commerzbank all down more than 5%.
Silicon Valley Bank provides a lot of services to start-up firms, especially venture capital technology and life sciences companies in the US. The 40-year-old company was forced to sell securities Thursday, reducing its $21 billion holdings to $1.8 billion. A loss in raising $500 million from venture capital firm General Atlantic, according to a financial update on Wednesday.
The company said in a letter from CEO Greg Becker on Wednesday that it had sold “all” of its marketable securities and plans to raise $2.25 billion through common stock and convertible preferred stock.
The US Federal Reserve raised interest rates aggressively last year, which could lead to lower long-term bond prices, and SVB plans to reinvest the proceeds from the sale into short-term assets.
Billionaire investor and Pershing Square CEO Bill Ackman tweeted early Friday that if SVB fails, it could “eliminate an important long-term driver of the economy as VC-backed companies rely on SVB for loans and hold their operating cash.”
“If private capital can’t provide a solution, a very diluted government should consider preferential bailouts.”
Russ Mould, investment director at UK investment platform AJ Bell, said SVB’s announcement should not have come as a “huge surprise” after a period when “lenders and investors’ appetite for this part of the market has dried up”.
“However, in the highly interconnected banking industry, it is not easy to separate such events, which often reflect vulnerabilities in the wider system. The fact that SVB’s share offering coincided with the sale of its bond portfolio is a concern,” Mold. said.
“Many banks hold large portfolios of bonds and rising interest rates make them more valuable – the SVB case is a reminder that many institutions are sitting on large unrealized losses on their fixed income.”
This is breaking news and will be updated soon.
