The four largest US banks saw their stock prices lose a cumulative $52 billion on Thursday, as the financial sector digested reported trouble at SVB Financial, a major Silicon Valley-focused lender.
Shares of SVB Financial plummeted 60 percent on Thursday and continued to fall in after-hours trading, following an announcement the prior evening that it had lost $1.8 billion in sales of securities to raise funds.
That massive drop rippled through the financial sector, with biggest US bank JPMorgan Chase ending the day down 5.4 percent.
Bank of America and Wells Fargo both fell 6.2 percent, while Citigroup was down 4.1 percent.
Alexander Yokum, an analyst with CFRA Research, said SVB’s problems can be attributed to its heavy involvement with venture capital and private equity.
As interest rates have climbed, “those industries have really struggled,” Yokum said. Their increased withdrawals of funds have subsequently forced SBV to seek more liquidity.
Wells Fargo’s Mike Mayo echoed that view, saying that the core issue at SVB “is a lack of funding diversification,” with most deposits coming from venture capital.
The situation at the Silicon Valley-based firm is not fully indicative of the banking industry, but the struggle “affects sentiment,” he added.
S&P has downgraded the company’s debt rating by one notch, saying SVB is likely to face even more withdrawals.
SVB’s disclosure came on top of an announcement the same day that crypto banking titan Silvergate plans to shut down in the face of cryptocurrency market turmoil.
Though the two events are unrelated, “all of a sudden everybody’s wondering… ‘how does every other bank look?'” Yokum said.
He noted that in a high interest rate environment, “a bond portfolio goes down.”
The US Federal Deposit Insurance Corporation (FDIC) has also warned about high interest rates threatening banks’ portfolios, saying in a recent report that “longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values.”
At the end of 2022, the total amount of banks’ unrealized losses on those securities totaled about $620 billion, the FDIC said.
Banks generally just wait for bonds to mature, not losing money in the process.
“But if there is a run on deposits,” Yokum said, banks “would be forced to sell their securities and book massive losses.”
That’s “probably not going to happen” at most banks, he added.
However some banks have “started to see deposit outflows, Yokum said, with “people moving their deposits into places that give a higher yield.”