SVB Financial Group was exploring options, including a sale, after its efforts to raise capital through a stock sale failed, sources familiar with the matter said on Friday, as a crisis at the tech-heavy lender rippled through global markets and hit banking stocks.
Shares of SVB Financial Group were halted on Friday after tumbling 66 per cent in premarket trading.
SVB, which does business as Silicon Valley Bank, was not immediately available for comment.
The brutal rout in the lender's stock, which began on Thursday, spilt over into other US and European banks as the episode spread concern about hidden risks in the sector and its vulnerability to the rising cost of money.
The S&P 500 banks index dropped 4.2 per cent on Friday after a 6.6 per cent decline on Thursday, while the KBW Regional Banking index was down 5.3 per cent.
Europe's Stoxx banking index fell more than 5 per cent, set for its biggest one-day slide since early March 2022, with declines for most major lenders, including HSBC, down 6.1 per cent, and Deutsche Bank, down 9.2 per cent.
The problems at SVB underscore how a campaign by the US Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market.
The technology sector has been hit hard in the past few months and stress has appeared in other corners of the market as rates rise.
On Friday, officials said the US economy added jobs at a solid clip in February, likely ensuring that the Fed will raise interest rates for longer.
“The volatility we are seeing among some of the banks is a reminder that sharp increases in interest rates will increase areas of fragility,” said Ronald Temple, chief market strategist at Lazard.
The crisis at SVB started this week when the bank, which lends heavily to tech start-ups, launched a share sale to shore up its balance sheet after selling a portfolio consisting mostly of US Treasuries at a loss.
Sources familiar with the situation said on Thursday that some start-ups had advised their founders to pull their money from SVB as a precautionary measure.
Banks typically invest heavily in government bonds, in particular those of their home country. Rising interest rates have caused the price of such bonds to fall, feeding investor concerns that other banks might also be vulnerable.
Earlier this month, the Federal Deposit Insurance said US banks faced a total of about $620 billion in unrealised losses on their securities holdings at the end of 2022.
But banking experts said SVB's issues were unique and the worries about the broader sector were not warranted.
“The knee-jerk reaction in the market to this risk event looks overdone. But rising costs of deposits and possible deposit withdrawals are likely to pressure sector earnings,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note.
Even so, some banks felt the need to reassure the market, issuing statements of the kind not seen since the financial crisis.
Commerzbank, one of Germany's largest banks, for example, played down any threat from SVB, saying it did not see “a corresponding risk for us”.
“The market is treating this as a potential contagion risk,” said Antoine Bouvet, senior rates strategist at ING in London.
Global borrowing costs have risen at the fastest pace in decades over the past year as the Fed lifted US rates by 450 basis points from near zero, while the European Central Bank raised the eurozone's by 300 bps.
Other parts of Europe and many developing economies have done even more.
Neil Wilson, chief market analyst at Markets.com, said that the SVB episode could be the “straw that breaks the camel's back” for banks after worries about ever higher interest rates and a fragile US economy.
