Silicon Valley Bank halted trading of its shares in the premarket on Friday pending an announcement, as the bank appeared to dangle on the verge of ruin.
Shares of SVB plummeted as much as 64% in premarket trading after declining about 60% in the previous session, when it revealed plans to raise over $2 billion from investors to counter $1.8 billion in losses from the sale of bonds.
According to a report from CNBC citing sources, the bank on Friday morning was readying itself to announce that it was in discussions for a sale — but word came out that a huge run on the bank’s deposits had cast doubt on a bailout merger.
‘The market has to prepare for the possibility that there will not be a sale, and then you can leave it to your own imagination what that means,’ said CNBC anchor David Faber, phoning in to the network while on vacation.
On Thursday night, Founders Fund, the venture capital fund co-founded by Peter Thiel, advised startups to pull their money from Silicon Valley Bank amid concerns about its financial stability, according to Bloomberg.
Theil’s warning, and a similar alarm from startup incubator Y Combinator, elevated fears that a run on SVB deposits could force the bank into insolvency, if it were inadequate to meet the call for customer withdrawals.
It came after parent company SVB Financial Group proclaimed a huge equity raise to cover a $1.8 billion loss on the sale of bonds, which the bank was compelled to liquidate to cover a abrupt decline in deposits.
That plan failed to placate investors who worried whether the capital increase would be sufficient to cover a steep decline in deposits.
SVB said its deposits were falling faster than it had expected due to elevated spending by its clients, largely technology and healthcare startups, as new infusions of investment capital dry up due to increasing interest rates.
The situation also raised fears of broader market contagion, after the S&P 500 bank index tumbled more than 6% in its biggest one-day drop in over two years on Thursday.
The four largest US banks — JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup — saw their share prices plunge between 4% and 6%, wiping $52.3 billion from their collective market capitalizations for the day.
In reply, billionaire hedge funder Bill Ackman led calls for a government bailout for distressed SVB, which caters to the tech startups of Silicon Valley.
‘The failure of SVB Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash,’ wrote Ackman in a tweet.
‘If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered,’ he added.