Last Thursday the S&P 500’s bank index finished down 6.6% after hitting its lowest level since mid-October, its biggest one-day drop in over two years as Investors fled the sector after tech-industry lender SVB Financial Group launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding and following crypto bank Silvergate’s decision to wind down operations.
Shares of SVB, whose operating segments include Silicon Valley Bank, slumped over 50% in their deepest one-day drop on record after the company announced a $1.75 billion share sale late on Wednesday. SVB is battling cash burn due to declining deposits from startups struggling with a venture capital funding drought.
Unlike most banks, which are helped by rising rates, SVB Financial is “generally hurt by them,” Oppenheimer says, as its deposit base is “generally made up of commercial customers who are rate-sensitive.”
The slump in SVB Financial further soured the sentiment on banking stocks, which have been pressured by a deeper inversion in the Treasury yield curve – a harbinger for a recession.
Morgan Stanley analysts said lower 2023 NII guidance at SVB is driven by cash burn among private companies that bank with SVB. This, according to the analysts, will cause SIVB to bring more higher-cost sweep accounts onto its balance sheet, paying roughly the Fed funds rate to do so.
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