Silicon Valley Bank shares plummet as investors withdraw
By Paul Reid
10 March 2023
Silicon Valley Bank (ticker: SIVB), a major lender to technology startups just saw a massive decline of 60% in its share prices on Thursday, March 9 as a result of investors' panic selling. But what caused the investors to get such cold feet and how should traders react to the news?
Market analysis of SVIB shares
SVIB share price dropped from $597.16 (USD) at its 52-week high to $100 at its 52-week low. The main catalyst for this downfall was a surprise announcement on March 8 that the bank would sell a large bond portfolio at a loss of $1.8 billion, which raised concerns about its liquidity and capital adequacy.
The bank also launched a $1.75 billion share sale on March 9 to shore up its balance sheet and cope with cash burn, but this only exacerbated the sell-off as investors feared dilution and lack of confidence. As a result, SVB lost over half of its market value in one day, wiping out $61 billion from bank stocks.
The crash is SVB’s worst drop in over three decades, following the capital offering, which led SVIB Financial Group's stock to tumble 60%, contributing to the loss of over $80 billion in value from bank shares.
SVB is not the only bank in crisis
While SVB’s crash is all the buzz right now, it’s not the only bank to struggle with today’s economic climate. Shares in the four largest US banks have fallen too, including JP Morgan and Wells Fargo, collectively losing billions in market value over Q1.
SVB's Chief Executive Officer, Greg Becker, said that the bank is taking these actions because it expects continued higher interest rates. If expected higher interest rates will affect all banks in a similar way, the domino effect will reach the markets soon, and traders will be in for a rough ride in Q2 2023.
The SVB crisis has sparked panic among investors who fear that SVB’s troubles may signal broader risks in the banking sector. SVB attempted to calm investors' nerves by reassuring them that their money was safe and that the bond sale was a strategic move to reduce interest rate risk, but it remains to be seen if this will restore trust and stability in the long term.
While some media outlets are suggesting that the 2023 recession is on pause, the SVB crisis may well be the first of many signs that the downturn is just around the corner. Whether you are trading currencies or stocks, it is strongly advised that you reevaluate your preferred leverage settings and set Stop Loss on all orders.
Other short trading opportunities may well be on the horizon for savvy traders in the wake of this crash, but analysis and due diligence is a must before placing any sell orders, as the banks will implement measures to avoid further depreciations, which will likely create significant market volatility in the coming weeks.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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