Silicon Valley Bank fails to find buyer as run on bank outpaced sale process

[BumRushDaShow]

Last edited Fri Mar 10, 2023, 01:47 PM - Edit history (2)

Source: CNBC

SVB Financial, parent of Silicon Valley Bank, was unable to find a buyer before a bank run caused regulators to shut it down. Sources told CNBC’s David Faber earlier that deposit outflows were outpacing the sale process, making it very difficult for a realistic assessment of the bank by potential buyers to take place.

SVB was trying to find a buyer and hired advisors to do so after attempts by the bank to raise capital failed, the sources told Faber. Shares of the bank fell 60% on Thursday after SVB announced a plan Wednesday evening to raise more than $2 billion in capital. The stock fell another 60% in premarket trading Friday before being halted. The shares never reopened for trading Friday.

Under the terms of a plan released Wednesday, SVB was looking to sell $1.25 billion in common stock and another $500 million of convertible preferred shares.

SVB also announced a deal with investment firm General Atlantic to sell $500 million of common stock, though that agreement was contingent on the closing of the other common stock offering, according to a securities filing. SVB is a major bank for venture-backed companies, and cited cash burn from clients as one reason it was looking to raise additional capital.

Read more: https://www.cnbc.com/2023/03/10/silicon-valley-bank-financial-in-talks-to-sell-itself-after-attempts-to-raise-capital-have-failed-sources-say.html

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Full headline: Silicon Valley Bank Financial in talks to sell itself after attempts to raise capital have failed, sources say

Apparently due to fallout from the sudden interest rate hikes and being loaded up with bonds while people are doing a run on them.

Article updated.

Previous article/headline -

Silicon Valley Bank Financial in talks to sell itself after attempts to raise capital have failed

SVB Financial, parent of Silicon Valley Bank, is in talks to sell itself, sources told CNBC's David Faber. Attempts by the bank to raise capital have failed, the sources said, and the bank has hired advisors to explore a potential sale.

Large financial institutions are taking a look at a potential purchase of SVB. However, deposits outflows are so far outpacing the sale process, making it very difficult for a realistic assessment of the bank by potential buyers to take place, the sources told Faber.

Shares of the bank fell 60% on Thursday after SVB announced a plan Wednesday evening to raise more than $2 billion in capital. The stock fell another 60% in premarket trading Friday before being halted for pending news. The shares did not open for trading with the rest of the market at 9:30 a.m. and were still halted.

Under the terms of a plan released Wednesday, SVB was looking to sell $1.25 billion in common stock and another $500 million of convertible preferred shares. SVB also announced a deal with investment firm General Atlantic to sell $500 million of common stock, though that agreement was contingent on the closing of the other common stock offering, according to a securities filing.

Original article -

SVB Financial, parent of Silicon Valley Bank, is in talks to sell itself, sources told CNBC's David Faber. Attempts by the bank to raise capital have failed, the sources said, and the bank has hired advisors to explore a potential sale. Large financial institutions are looking at a potential purchase of SVB.

Shares of the bank fell 60% on Thursday after SVB announced a plan Wednesday evening to raise more than $2 billion in capital. The stock fell another 60% in premarket trading Friday before being halted for pending news. Under the terms of a plan released Wednesday, SVB was looking to sell $1.25 billion in common stock and another $500 million of convertible preferred shares.

SVB also announced a deal with investment firm General Atlantic to sell $500 million of common stock, though that agreement was contingent on the closing of the other common stock offering, according to a securities filing. SVB is a major bank for venture-back companies, and cited cash burn from clients as one reason it was looking to raise additional capital.

However, rising interest, fears of a recession and a slowdown in the market for initial public offerings has made it harder for early stage companies to raise more cash. This has apparently led the firms to draw down on their deposits at banks like SVB.

[Lucky Luciano]

1. The bank has been closed.

FDIC kicking in

[palinny]

3. FDIC will only help 3% of deposits

The bank held the funds that VCs invested into new tech start-ups who were actually forced to keep all of their funds in just two Silicon Valley area banks which is one of the stupidist things I've ever heard -- so much for genius tech VCs who never learned about diversification of risk.

[Lucky Luciano]

5. Where is the 3% number from? Real or an exaggeration of something that is nonetheless terrible?

[palinny]

6. It's not officially from the FDIC -- this is what my son's VC said:

Hope this helps: his VC (with Sequoia) told him that it's 5.69% based on SVB's Q4 call report of its $161 billion domestic deposits... a couple months have gone by since then, so the percentage may have changed but probably not drastically.

[yardwork]

9. Is this related to the cyber currency crash?

It seems like a lot of Silicon Valley millionaires invested in cyber currency. Are they panicking now and trying to access other funds? Or was this an old fashioned panicked run on a bank?

Why in the world were they forced to keep their funds in only two banks? Some kind of scam?

My opinion of these people who made their money through "disrupting" things they don't understand is low. Bunch of spoiled frat boy types, imo.

[palinny]

2. My son's start-up was forced by VCs to put all its funds in this bank

Now the one-year-old cyber-security start-up will be laying off all its software engineers. The only hope is for a company like Google to hire them to continue working on the new product, but that outcome doesn't seem very likely. I hate unregulated cryptocurrencies and unethical bankers who cashed out over the past year because they realized they had made bad bets (crypto & longterm, low-interest mortgages/bonds) with the bank's investments of depositors' funds.

The fallout now means that the U.S. will likely fall far behind other countries like China and Israel in the tech space which will impact our national secrutiy among other things.
Sigh.

edited for typo fixes.

[mathematic]

4. SVB was not the crypto bank, that was silvergate

From what I've heard, SVB's customers are not losing any money. This is a rapidly developing story, of course, but your son's start up probably doesn't need to close the doors just yet.

[palinny]

7. Thank you

His company has enough money to meet one more payroll (two weeks). He just heard that lots of funds were invested in short-term U.S. Treasuries in addition to the longer-term investments, so I'm keeping my fingers crossed.

[ashredux]

8. Apparently, you are correct. They locked in a lot of long-term securities, then rates went up.

They made very dumb decisions. I repeat, they made very dumb decisions.