- By James Clayton, Peter Hoskins and Annabelle Liang
- in San Francisco and Singapore
Image source, Getty Images
Shares of banks around the world fell after troubles at a US bank raised fears of a wider problem in the financial sector.
On Thursday, shares of Silicon Valley Bank (SVB), a major lender to technology startups, fell after it announced plans to shore up its finances.
This had a knock-on effect, with the four largest US banks losing more than $50bn in market value.
Bank shares in Asia and Europe fell sharply on Friday.
Among UK banks, HSBC shares fell 5.6% and Barclay’s fell 3.5%.
SVB shares saw their biggest one-day drop on record on Thursday as they tumbled more than 60% and lost another 20% in after-hours trading.
The slide came a day after the bank announced a $2.25bn (£1.9bn) share sale to boost its finances.
But especially for the bank, some beginners with deposited money are advised to withdraw the funds.
Hannah Chelkowski, founder of Blank Ventures, a fund that invests in financial technology, told the BBC that the situation was “wild”. He advised the companies in his portfolio to withdraw the funds.
“It’s crazy how it’s broken like this. The interesting thing is that it’s the most start-up friendly bank and has supported start-ups a lot through Covid. Now VCs are telling their portfolio companies to pull their funds,” he said.
“It’s brutal,” he added.
A key lender for early-stage businesses, SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies listed on stock markets in last year.
The SVB did not immediately respond to a BBC request for further comment.
In the broader market, there are concerns about the value of bonds held by banks as rising interest rates make bonds less valuable.
Central banks around the world – including the US Federal Reserve and the Bank of England – have sharply increased interest rates as they try to control inflation.
Banks tend to have large portfolios of bonds and as a result are sitting on large potential losses. A fall in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them.
But, if like Silicon Valley Bank, the lenders have to sell the bonds they hold at a loss that could have an impact on their income.
“Banks are casualties of rising interest rates,” Ray Wang, founder and chief executive of Silicon Valley-based consultancy Constellation Research told the BBC.
“No one at Silicon Valley Bank and many other places thought that these interest rate hikes would last this long.
Russ Mould, investment director at AJ Bell, said the ripple effect of SVB’s problems showed these types of events “often signal weaknesses in the wider system”.
“The fact that SVB’s share placement was accompanied by a fire sale of its bond portfolio raises concerns.
“Many banks hold large portfolios of bonds and rising interest rates make them less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealized losses on their fixed- income. [bond] properties.”
