This is after a $1.25B common stock offering in an attempt to shore up its cash reserves.
Keep in mind they are raising cash by selling equity with their shares at $100 when they were at $500 a less than a year ago.
That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house that is currently on fire.
Rumour was that SIVB got alot of the old SI deposits when it became clear that they were going bankrupt.
It looks like both SI and SIVB will go bankrupt due to the same two causes.
The one two punch of:
- loan duration mismatches(short term deposits bet against long term loans). More specifically to get some interest income you tend to have to either go to riskier assets, not an option for bank, or longer duration. Unfortunately this locks you into rates for a long term.
As everyone knows, rates have really gone up quickly in a short duration. This makes your long duration assets drop alot in value so you can't easily liquidate them to move to new higher paying assets.
Normally this would be fine as you can ride out the duration of your long term bets without losing money, except for the second issue below.
- and a deluge of withdrawals meaning you can't just ride out your long term loans.
The difference here is that while SI will go away, someone will probably buy SIVB. It's just that with FDIC only protecting the first $250,000 in deposits you don't want your corporate money at the bank. And you certainly don't want to wait for FDIC to step in and make you whole.
There is a potential third issue with SIVB in that as the bank of alot of silicon valley startups they hold a lot of warrants for those companies on their balance sheet. And those have really been written down alot lately. Stripe, a great company by most measures had its valuation cut in half according to a post from yesterday so you can imagine what the average startup's valuation is worth if strip is being cut in half.
SIVB got hit by a lot of different issues all at once but they all had the same root cause, large interest rate hikes in a quick timeframe.
The other commonality between SIVB an SI is that both banks heavily concentrated on one sector only, for SI it was crypto and for SIVB it was silicon valley. For each bank they ran into interest rate hikes at the same time that the sectors they relied on took a huge dive in value.
Diversification is important.