A crisis at US start-up lender Silicon Valley Bank (SVB) has sent shockwaves across the Atlantic today and dragged down shares in London-listed lenders.
Shares in Nasdaq-listed SVB plunged over 60 per cent yesterday after the firm announced a $1.75bn share sale on Wednesday in a bid to shore up its balance sheet and plug a $1.8bn hole caused by the sale of a $21bn loss-making bond portfolio.
However, the sale spooked investors and the firm’s start-up clients who have fled the firm in the past 24 hours.
Shares in SVB plunged to their lowest level since 2016 amid fears of a bank run as start-ups rushed to pull their cash from the firm.
It is not yet clear how the crisis has hit the the bank’s UK arm, SVB UK.
The firm declined to comment today when approached by City A.M.
The jitters spread across the Atlantic this morning and dragged down banking stocks in London.
Barclays fell over 3.5 per cent in morning trading, while Natwest tumbled around three per cent, Lloyds Banking Group around 3.5 per cent and HSBC over five per cent. The FTSE 350 banking index is down around 4.1 per cent as of 2:15pm today.
“An earthquake in Silicon Valley led to aftershock on Wall Street and the tremors could still be felt in London on Friday morning,” said AJ Bell investment director Russ Mould.
“Lending to tech start-ups is at the racier end of finance and in that context Silicon Valley Bank’s announcement of a $2.25bn rescue share issue, after a period when appetite from lenders and investors towards this part of the market has dried up, should not have come as a major surprise.”
Mould added that in a “heavily interconnected banking industry it’s not so easy to compartmentalise these sorts of events” which can hint at “vulnerabilities in the wider system”.
“The fact SVB’s share placing has been accompanied by a fire sale of its bond portfolio raises concerns,” he added. “Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income holdings.”