SHARES in banks around the world have crashed after a crisis at one US bank triggered fears of a wider crisis and the collapse of the the entire financial system.
On Thursday, shares in Silicon Valley Bank (SVB), a key lender to technology start-ups, plunged after it announced plans to shore up its finances.
The immediate effect was that the four largest US banks crashed by $50bn in market price.
Bank shares in Asia and Europe collapsed on Friday with UK bank HSBC shares falling by 5.6% and Barclays dropping by 3.5%. SVB’s shares saw its biggest one-day drop ever on Thursday as they plunged by more than 60% and lost another 20% in after-hours trade.
The crash came after SVB announced a $2.25bn (£1.9bn) share sale to try to boost its finances, after losing around $1.8bn when it offloaded a portfolio of mainly US government bonds. Panic immediately set in with some start-ups who have money deposited being advised to withdraw funds immediately.
Hannah Chelkowski, founder of Blank Ventures, a fund that invests in financial technology, told the BBC the situation was ‘wild’ and is advising companies in her portfolio to withdraw funds at once.
She described the situation as ‘It’s crazy, Its brutal, how it’s just unravelled like this. The interesting thing is that it’s the most start-up friendly bank and supported start-ups so much through Covid. Now Venture Capitalists are telling their portfolio companies to pull their funds,’ she said.
This is indeed the mother of all crises. SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies listed on stock markets last year.
Meanwhile Central Banks are being blamed for the crisis. The US Federal Reserve and the Bank of England – have sharply increased interest rates as they try to curb inflation.
The banks are holding large portfolios of bonds and are now sitting on significant potential losses.
One of the dangers is that, if like the Silicon Valley Bank, lenders have to sell the bonds they hold at a loss it will slash their profits .
‘The banks are casualties of the hike in interest rates,’ Ray Wang, founder and chief executive of Silicon Valley-based consultancy Constellation Research told the BBC. ‘Nobody at Silicon Valley Bank and in a lot of places thought that these interest rate hikes would have lasted this long. And I think that’s really what happened. They bet wrong,’ he added.
Russ Mould, investment director at AJ Bell added: ‘The fact SVB’s share placing has been accompanied by a fire sale of its bond portfolio raises concerns.
‘Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income bond holdings.’
Shares in the Silicon Valley Bank (SVB), a key lender to technology start-ups, plummeted on Thursday as investors moved to withdraw their deposits.
The slide came a day after the bank announced a $2.25bn (£1.9bn) share sale to help shore up its finances.
Shares in banks have fallen around the world – with the four largest US banks, including JP Morgan and Wells Fargo, losing more than $50bn in market price.
One venture capitalist described the day’s events as ‘wild’ and ‘brutal’, as Stock markets in Asia fell on Friday, driven lower by shares in banks. Shares in SVB saw their biggest one-day drop on record as they plunged by more than 60% and lost another 20% in after-hours trade.
The firm launched the share sale after losing around $1.8bn when it offloaded a portfolio of assets, mainly US Treasuries. Start-ups who have money deposited have been advised to withdraw funds.
Hannah Chelkowski, founder of Blank Ventures, said ‘It’s crazy how it’s just unravelled like this… The interesting thing is that it’s the most start-up friendly bank and supported start-ups so much through Covid. Now VCs are telling their portfolio companies to pull their funds,’ adding its ‘just brutal’.
SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.
Banks tend to hold large portfolios of bonds. Selling at a loss will bankrupt them.
The message for workers and the trade unions is that capitalism world wide, not just in the UK, is broken and now is the time to dump it with a world socialist revolution to bring in world-wide socialism.
