- By James Clayton, Peter Hoskins and Annabelle Liang
- in San Francisco and Singapore
source of images, Getty Images
Shares of banks around the world fell after unrest at a US bank raised fears of a wider problem for the financial sector.
On Thursday, shares of Silicon Valley Bank (SVB), a leading lender to tech start-ups, plunged after announcing plans to shore up its finances.
This had a ripple effect, with the four largest US banks losing over $50 billion in market value.
Shares of banks in Asia and Europe fell sharply on Friday.
Among UK banks, HSBC shares fell 5.6% and Barclay 3.5%.
Shares of SVB suffered their biggest one-day drop on Thursday, plunging more than 60% and losing another 20% in after-hours trading.
The fall came a day after the bank announced a $2.25bn (£1.9bn) share sale to boost its finances.
But more worrying for the bank, some start-ups that have money deposited have been advised to withdraw funds.
Hannah Chelkowski, founder of Blank Ventures, a fund that invests in fintech, told the BBC the situation was “wild”. She advises companies in her portfolio to withdraw funds.
“It’s crazy how it’s unfolding like this. What’s interesting is that it’s the most start-up friendly bank and the start-ups supported through Covid. Now VCs are telling their holding companies to withdraw their funds,” she said.
“It’s brutal,” she added.
A crucial lender for start-ups, SVB is the banking partner for nearly half of the venture-backed U.S. tech and healthcare companies that went public last year.
SVB did not immediately respond to a BBC request for further comment.
In the broader market, there are concerns about the value of bonds held by banks, as rising interest rates have made such bonds less valuable.
Central banks around the world – including the US Federal Reserve and the Bank of England – have raised interest rates sharply as they try to rein in inflation.
Banks tend to hold large bond portfolios and therefore sit on large potential losses. The decline in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them.
But if, like Silicon Valley Bank, lenders have to sell the bonds they hold at a loss, it could impact their profits.
“Banks are the victims of rising interest rates,” Ray Wang, founder and chief executive of Silicon Valley-based consultancy Constellation Research, told the BBC.
“Nobody at Silicon Valley Bank and in many places thought these interest rate hikes would have lasted this long. And I think that’s really what happened. They bet badly,” a- he added.
Russ Mould, chief investment officer at AJ Bell, said the ripple effect of problems at SVB showed that these types of events “often suggest vulnerabilities in the wider system”.
“The fact that SVB’s equity placement was accompanied by a sell-off of its bond portfolio raises concerns.
“Many banks hold large bond portfolios and rising interest rates are making them less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealized losses on their fixed income holdings (obligations).”