US Silicon Valley Bank (SVB) in financial trouble. The bank is a major lender to many startups and new companies in the country. Many experts have compared SVB’s current situation to the liquidity crisis at Lehman Brothers and Evergrande.
The last time such a big financial crisis came was more than a decade ago. What happened At that time the entire US market was shaken by the collapse of Washington Mutual. According to experts, this is the biggest such incident since that time.
Silicon Valley Bank has been hit hard by the technology meltdown over the past year. Large companies like SVB have poured funds into the technology space during and after the Corona crisis. But the picture has changed in the last one year. Most of the tech startups are faltering due to lack of profits. It has also suffered from the Federal Reserve’s aggressive plan to raise interest rates to combat inflation.
SVB’s securities portfolio took a severe hit. Apart from this, there is also tension regarding funding. As a result, SVB Financial Group’s bonds and shares began to decline as it began efforts to raise capital.
At such a time, he announced the sale of shares to raise money. Shares of California’s SVB Financial Group hit a record low on Thursday. This is the biggest decline in more than 20 years. The company that owns Silicon Valley Bank now has only one goal. To strengthen the financial position of three types of credit institutions. And that’s why they have taken several steps. One of them is the sale of this stock. But if the company itself reduces its stake, then the investors in those shares also get heartbroken. As a result of this huge fall in the share price.
Shares of SVB Financial fell nearly 60%. Meanwhile, while selling securities to raise funds, he lost about US$1.8 billion.
SVB said it has sold about $21 billion of its available for sale (AFS) securities. This resulted in a loss of US$1.8 billion. On the other hand, they are raising another USD 2.25 billion through equity and debt. Investors are somewhat surprised by this activity of the company. Many of them thought that SVB had enough money. There is no need to go to places like selling AFS portfolios overnight. In fact, this portfolio generated an average return of 1.79%. Which is much lower than the current rate of 3.9% of the 10-year Treasury yield.
Is this a sign of a repeat of the 2008 US recession?
The answer at this time is ‘no’. If experts are to be believed, there is no possibility of any major problem in the banking sector. Overall the banking system is still quite strong.
SVB only poured more money into companies involved in technology and innovation. And that’s why they are drowned when recession comes. But the portfolios of other lenders and investors are much wider. And that’s why they don’t have this fear in their mind right now.
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