SVB Financial Group (SIVB) falls and the market is seeing red arrows everywhere!

Last updated on May 15, 2023

What happened to SVB Financial Group (SIVB ) and what does this means to the market?

SBV Financial was one of the biggest banks of Silicon Valley.  The stock dropped over 60% on Thursday and another 60% on Friday pre-market.  It was halted.   What happened to the stock SIVB?  It was 575 on 3/23/22 and today 3/10/23 is halted at $39 after bank regulators shut it down.  The biggest lending and deposit bank in Silicon Valley insolvent.

SVB Financial Group funds many of the tech start ups and other ventured backed companies.  The simple answer is the bank got squeezed by the FED.   Before the Fed rate hikes over the last year, SVB Financial Group was a beneficiary of all the cheap money that was being put in the bank from tech companies and venture funds.  Tech, start-ups and venture funds were putting billions of dollars into the bank as money was raised from new investors.  Over $21 billion in the 2020-2021 tech boom, that SVB Financial Group put into Treasury Bonds.  Treasury Bonds are often thought as safe, but they didn’t manage the duration very well.  Once the FED started raising rates, the value of the Treasury Bonds started to drop…. The start-ups, venture funds and lack of IPOs ran out of money as the market tanked. The SVB had to sell their portfolio.  They were selling low interest rate bonds in the highest interest market we have had in years. This resulted in a $1.8 Billion loss.  There was a run on the bank and everyone was trying to get their money out.  Why were the Treasury Bonds at a loss?  The FED’s aggressive move in the last year, stifled inflation but also the economy.  Bonds with a 3% yield were getting crushed with the yield now at 5%. To sell, they had to sell 3% bonds to give the new investor a 5% yield equivalant.  Basically, the bank had to many long-term investments at low rates and lost everyone they sold immediately, but the depositors needed/wanted their cash.  There was a RUN.

This is big news and will have a tremendous impact on innovation, job loss and depositors cash liquidity.  More to come on this shortly but expect the market to be down.  This is like the dot.com bubble, Madoff and the housing bubble.    I will explain more later.

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