Stock price drops 70% after 24 hours, SVB brings 'negativity' to the banking industry

The collapse of the “crypto-friendly” bank

As this story was being written, regulators announced that they were seizing Silicon Valley Bank in the largest bank bankruptcy since the Great Depression.

The struggle of banks serving the crypto industry continues – and it’s starting to spill over into other industries – as SVB Financial (SIVB), the parent company of Silicon Valley Bank (SVB), has seen its stock price drop 70% and is now rumored to be in talks to sell itself.

SVB Financial has hired advisers to explore a potential sale after its fundraising efforts fell through, CNBC reported. Major financial institutions are reportedly considering a takeover, but the massive outflow of money is making it difficult for potential buyers to realistically assess the bank.

Stock price down 70% after 24 hours, SVB brings negative news to the banking industry, image 1 — Stock price drops 70% after 24 hours, SVB brings "negativity" to the banking industry. Illustrative photo

SVB is well known in the tech industry as home to venture capital firms focused on technology and startups, and is also considered one of the more crypto-friendly banks in the banking industry. Its troubles mark the latest blow to the crypto industry, which has struggled with banking partnerships of late.

On Wednesday, crypto-focused Silvergate Captial (NYSE: SI) announced that it will cease operations and liquidate assets as it is unable to recover from massive outflows and lost revenue due to a collapse in crypto valuations in 2022.

At its peak in November 2021, Silvergate's share price reached a high of $240, but due to the bank's challenges, SI was trading around $5 at the time of publication and is now trading below $3.

Investors are now starting to get a sense of the “hallucinations” as SIVB shares have fallen nearly 70% from a high of $347.21 on March 2. The second straight day of declines and a 68% pre-market selloff on Friday led to trading being halted on SIVB pending an announcement that it was looking for buyers. The shares did not open for trading with the rest of the market at 9:30 a.m. and remained halted at the time of writing.

Reminiscent of the Great Recession of 2008

SVB’s troubles began when the California-based bank unexpectedly reported a $1.8 billion loss after withdrawing deposits and announced plans to raise $2.25 billion by selling common and preferred stock. Under the plan, announced Wednesday, SVB is looking to sell $1.25 billion in common stock and another $500 million in convertible preferred stock.

The bank also announced an agreement with General Atlantic to sell $500 million in common stock in a deal that is contingent on the closing of another common stock offering, according to a securities filing.

It's not just SVB that's struggling right now, with many banking institutions scrambling for cash amid a plunge in their share prices that's reminiscent of the 2008 Great Recession for some.

First Republic Bank (NYSE: FRC) saw its stock price fall from $123.18 on Monday to as low as $45.16 in Friday trading before rebounding above $80 at the time of writing, marking a 35% drop on the weekly chart.

And Signature Bank (NASDAQ: SBNY), which has become the de facto target of the crypto industry following the Silvergate collapse, is down 28% on its weekly chart and is currently trading at $80.65 after recovering from an early morning plunge to $61.62.

Stock down 70% after 24 hours, SVB brings negative news to the banking industry, image 2 — The giant JPMorgan is the first bank to be "collaterally affected" by SVB. Illustrative photo

Looking beyond the cryptocurrency industry, large writedowns and withdrawals are starting to hit tech sector banks, raising concerns among some that the growing contagion could soon spread to larger banking institutions and other sectors of the economy . Even JPMorgan (JPM) has been affected by the bank stock sell-off, with shares trading down 7.6% for the week.

The KBW Nasdaq Bank Index (KBWB) fell 19.26% from a high of $56.74 on Monday to a low of $45.82 on Friday before recovering to $48.67, marking a weekly decline of 13.36%.

CNBC’s Jim Cramer noted that the market has a hard time dealing with banks using Bitcoin and “pre-IPO” stocks as collateral, and the only two major banks that fit that description are Silvergate Capital and Silicon Valley Bank.

Hoang Tu (According to Kitco News)

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