Silicon Valley Bank is a commercial bank and one of the largest banks in the United States. (Photo: Twitter)
The crisis at the Silicon Valley bank worsened after the company sent a letter to shareholders saying it would seek to raise more than $2 billion in capital after suffering losses.
Silicon Valley Bank (SVB) CEO Greg Becker sold $3.6 million of the company’s stock in a proposed trade less than two weeks before SVB disclosed the massive losses that led to its failure. Bloomberg reporting. The report said it was the first time in more than a year that Becker sold shares in parent company SVB Financial Group. He sold 12,451 shares on February 27.
The crisis at the Silicon Valley bank worsened after the company sent a letter to shareholders saying it would seek to raise more than $2 billion in capital after suffering losses. That sparked a massive selloff in the company’s stock, which plunged 60 percent in one day.
Silicon Valley Bank is a commercial bank and one of the largest banks in the United States. SVB has relationships with more than 50 percent of all venture-backed companies in the US and countless venture capital (VC) firms.
SVB’s financial profile benefits from an abundance of client funds, including on-balance sheet deposits and off-balance sheet client investment funds. Its average client funds in Q4 2022 were $348 billion. Last year, the lender increased Federal Home Loan Bank debt due in the second half of 2022, resulting in a marketable funds/tangible bank assets ratio of 9.1 percent. on December 31, 2022, and historically this figure was very low. The bank’s net interest margin (NIM) fell to 2.0 percent for Q4 2022 and net interest income fell to 13 percent quarter-over-quarter.
Crisis in SVB
SVB saw a massive inflow of deposits in 2021, rising from $61.76 billion at the end of 2019 to $189.20 billion at the end of 2021. As deposits grew, SVB could not grow its loan book fast enough to generate the returns it wanted to see. in this capital.
Thus, the bank purchased a large amount (over $80 billion) of mortgage-backed securities (MBS) with these deposits for its hold-to-maturity (HTM) portfolio. Almost 97% of these MBS had a duration of more than 10 years, with an average yield of 1.56%.
However, the value of SVB’s mortgage-backed securities (MBS) has fallen sharply with the US Fed’s interest rate hikes. That’s because investors can now buy long-term “risk-free” bonds from the Fed at 2.5 times higher yields. In other words, as the US Fed’s interest rates have risen, the value of existing low-paying bonds has fallen.
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