6 mins read
Silicon Valley

One of Californias reknown commercial Banks, Silicon valley, has collapsed despite warnings from agencies on pending doom.

The crash came a day after the Chief executive of the bank, Gregory Becker, had boasted to investors, Analysts and Tech executives on Tuesday, at a technology conference last week in San Francisco’s luxurious Palace Hotel that the future of the tech industry was sparkling — and so was Silicon Valley Bank’s place within it.

According to New York Times, the bank announced a $1.8 billion loss and a hastily put together plan to raise $2.25 billion in fresh capital the next day (I.e Wednesday).

The news spooked the bank’s depositors and investors so much that on Thursday, its stock fell roughly by 60 percent and clients pulled out roughly $40 billion worth of their money from the bank.

Read more: Leadership tussle: Hoodlums sack Ondo monarch from palace

Roughly a week earlier, U.S rating agency, Moody’s, had called to tell Mr. Becker that his bank’s financial health was in jeopardy, and its bonds were in danger of being downgraded to junk.

Also commenting on the fall, ABC news blammed the down turn of the bank on improper control of delicate information especially through social media. It said the 1.8 billion Dollar loss dominated most discussions on Twitter.

“After a woeful financial report last Wednesday set off concern, some of the depositors discussed their reactions in WhatsApp and Slack groups devoted to startups.

“Meanwhile, several prominent venture capitalists and other major investors voiced their concern on Twitter, amplifying fears of a collapse.

“On Thursday, shares of Silicon Valley Bank fell 60% in response to concern about the bank’s distressed financial position.By the early afternoon, the sudden decline of the bank took over online discussions among startup founders,

Shortly after Moody’s warned Mr. Becker of a potentially steep downgrade early in the week of Feb. 27, the bank reached out to Goldman Sachs, frantic that there could be a run on the bank if it didn’t shore up its finances, a person with knowledge of the deal said. It needed to sell some of its debt and raise new money from stock market investors.

Days after the Moody’s call, the bank said in a March 3 filing that it would be able to “sustain overall healthy client fund levels, despite balance sheet pressures from declining deposits, elevated client cash burn and overall market environment challenges.”

Last Wednesday, the bank issued a news release after the market closed, saying it had sold $21 billion of its debt at a loss of $1.8 billion and was looking to raise $2.25 billion in new equity. The investment firm General Atlantic said it would buy $500 million of the bank’s stock.

That afternoon, and on Thursday, Goldman bankers started pitching investors on buying SVB shares. The announcement had spooked investors, who worried that the bank was in deeper trouble than it was letting on. When the markets opened on Thursday, the bank’s shares fell steeply.

Silicon Valley woke up to a blizzard of text messages, phone calls and Twitter posts about the bank’s mounting woes. Clients of the bank rushed to pull deposits. On Thursday alone, they withdrew $42 billion.

Late morning Pacific time, Mr. Becker got on a webinar with hundreds of investors and lawyers. The bank had plenty of liquidity, he said, but he ended the call with one caveat: If people began telling one another that SVB was in trouble, it would pose a challenge, according to people briefed on the call.

When David Selinger, the chief executive of the security firm Deep Sentinel, who had been a Silicon Valley Bank customer for two decades, saw that line in a transcript that his lawyer had sent him, he instantly told members of his board that they needed to pull all their money from the bank.

Read more: Battle of Wits Looms as 89 SANs Slug it out at Presidential Election Tribunal

“It’s like in those words he created a prisoner’s dilemma for us,” Mr. Selinger said. “As much love and desire we have for SVB, fear came first.” But by Thursday afternoon, banking regulators including the F.D.I.C. were warning SVB that the bank might not survive, two people briefed on the negotiations said. The bank’s financial advisers raced to find a potential buyer, but nonecame forward.

On Friday morning, trading in its stock was halted. By that afternoon, the regulator had seized the bank. Mr. Becker’s nearly 30-year tenure at Silicon Valley Bank was over

Leave a Reply

Your email address will not be published.

Latest from Blog