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Two tech-centric banks strike trouble, spooking markets

Silicon Valley Bank sold billions in bonds as startups struggle, crypto-centric Silvergate Bank just gave up

Two tech-centric financial services operations have hit trouble, giving confidence in the sector another kicking.

Silicon Valley Bank (SVB), a part of the SVB Financial Group, bills itself as serving "innovation companies from their earliest stages – before they get their first round of VC funding – all the way through and beyond their IPOs." It boasts of handling banking for "nearly half of US venture-backed technology and life science/healthcare companies."

In mid-February SVB shares sold for $315 apiece. On March 8 they could be had for $265. At the time of writing shares were trading for $105.

The reason for the plunge was outlined in a Wednesday announcement that SVB sold off $21 billion of securities – making a $1.8 billion loss on that sale – and took action to raise around $2.25 billion.

A letter to investors [PDF] explained that the sell-off and capital raising are essentially precautionary.

"Even before today, we had ample liquidity and flexibility to manage our liquidity position," wrote president and CEO Greg Becker, who went on to state "VC deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted. The related shift in our funding mix to more, higher-cost deposits and short-term borrowings, coupled with higher interest rates, continues to pressure net interest income (NII) and net interest margin (NIM)."

That's bank-speak for "we lent money to startups that are spending it faster than expected, and some of them look like they might not make it because the economy is a mess and investors are out of love with tech."

As indicated by the 60 percent share price plunge, investors hate these actions because they signal SVB's investment portfolio was not in great shape and needed sudden attention and the injection of $20 billion. The term "fire sale" is being bandied about with reference to the $21 billion securities sell off.

In the wake of SVB's news, its systems have gone down. At the time of writing the org's website states: "Silicon Valley Bank's online banking system and mobile services are currently unavailable" but doesn't explain why

A common reason for tech outages is an inability to handle unexpectedly high traffic. SVB could be experiencing unexpectedly high traffic due to customers wanting to access their funds because they fear the bank could be in trouble.

Becker has reportedly told investors to remain calm, as the Bank is not in significant trouble – it just needed to find $21 billion in a hurry.

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