Tech Shock: Silicon Valley Bank’s 60% Stock Plunge Erases $80 Billion From Market Cap In A Single Day

Tech Shock: Silicon Valley Bank’s 60% Stock Plunge Erases $80 Billion From Market Cap In A Single Day

On March 09, 2023, Silicon Valley Bank’s stock price plummeted by 60% in a single day, leading to the wiping out of a staggering $80 billion from the bank stocks. 

The sudden crash of one of the most prominent players in the tech business’s banking sector sent shockwaves across Wall Street and beyond as investors and business experts scrambled to make sense of the dramatic downturn.

Silicon Valley Bank, founded in 1983, has long been associated with the tech business, providing financial services to startups, venture capitalists, and other players in the sector. 

The bank has been considered a bellwether of the tech business’s fortunes, given its focus on serving companies at the forefront of the technological revolution.

However, in recent years, Silicon Valley Bank has faced increasing competition from both traditional banks and fintech startups, as well as challenges from regulatory changes and a changing economic landscape. 

These factors, combined with concerns about the overall health of the tech business, may have contributed to the sudden crash of the bank’s stock price.

The implications of this event are far-reaching, not only for Silicon Valley Bank but also for the tech business as a whole. 

The crash of such a prominent player in the sector could signal broader challenges facing the business and may lead to increased scrutiny from regulators and investors alike.

A Quick Brief about Silicon Valley. 

Silicon Valley is a place located in Northern California, USA, that is synonymous with technology and revolution. 

The tech-home is home to some of the world’s most innovative and influential tech companies, including not only Apple, Google, Facebook, and Tesla, but also a huge number of startups and venture capital firms.

The term “Silicon Valley” came into existence in the 1970s when a group of semiconductor manufacturers set up shop in the area. 

Since then, this tech-home has become a hub for revolution, attracting talent, capital, and investment from around the world. Silicon Valley’s success has been driven by a combination of factors, including access to capital, a favourable regulatory environment, a concentration of talent, and a culture of risk-taking and entrepreneurship.

The place’s success also has been filled by its ability to improvise along with the rapid technological revolutions. 

Silicon Valley has been instrumental in the development of many of the technologies that have shifted our world, including the internet, smartphones, social media, and cloud computing.

The place is known for its high cost of living, traffic congestion, and growing income inequality. 

Additionally, the tech business has faced criticism for its impact on society, including concerns about data privacy, job displacement, and the spread of misinformation.

Despite these challenges, Silicon Valley stands still as one of the most important centres of revolution and technology in the world. Its influence on the tech business and the wider world is highly probable to continue for many years to come.

How it all started and what can be the possible reasons for this crash?

Facts stating this situation.

US-based Silicon Valley Bank, which provides funding to startups and tech firms, saw a 60% drop in its shares on Thursday. 

This was due to the bank’s announcement of a $1.75 billion capital raise to offset a $1.8 billion loss from the sale of its securities portfolio. To calm investors and clients, the bank emphasised the security of their funds. 

However, with declining deposits from struggling startups, the bank needs to strengthen its balance sheet. In response, Silicon Valley Bank announced a $1.75 billion share sale, including $1.25 billion of common stock and $500 million of depositary shares. 

The bank also entered into a subscription agreement with General Atlantic, allowing for the purchase of up to $500 million of common shares in a separate private transaction. This brings the total equity raised to $2.25 billion. 

Additionally, the bank completed the sale of its available securities portfolio worth $21 billion, resulting in an after-tax loss of $1.8 billion in Q1CY23. 

Despite concerns from some stockholders and clients about withdrawing their money, Silicon Valley Bank’s CEO, Greg Becker, assured them that their funds were safe with the bank.

How does this bubble keep growing? 

As the US Federal Reserve continues to increase interest rates to combat stubborn core inflation, venture capital (VC) funds have dried up, causing startups to struggle to find funding amidst declining valuations. 

Concerns over a possible recession prompted startups to withdraw money from their deposits with the lender.

In addition to Silicon Valley Bank, other major US banks also suffered losses. Wells Fargo & Co fell by 6%, JPMorgan Chase & Co lost 5.4%, Bank of America Corp slid by 6%, and Citigroup fell by 4%. 

The decline led to more than $80 billion in market value disappearing from the 18 banks in the S&P 500 banks index, and a $22 billion drop in JPMorgan’s value. 

Consequently, all major Wall Street indices drastic fall on Thursday, with the Dow Jones Industrial Average down by 1.66%, the S&P 500 losing 1.85%, and the Nasdaq Composite dropping by 2.05%.

Impact of this crash on the Global Economy. 

Here are some factors depicting how the crash of Silicon Valley Bank’s stock price could affect the global economy – 

1. Silicon Valley Bank is a major player in the tech business’s banking sector, providing financial services to startups, venture capitalists, and other players in the sector.

2. The sudden downturn in the bank’s fortunes could have ripple effects throughout the tech business and beyond.

3. The tech business has been one of the fastest-growing sectors of the global economy in recent years, and Silicon Valley has been at the forefront of this growth.

4. The crash of a major player in the sector could lead to increased scrutiny and regulation of the business, which could slow its growth and impact the global economy.

5. The crash of Silicon Valley Bank’s stock price could lead to a wider sell-off of tech stocks, as investors become more cautious about the business’s prospects.

6. This could have a major impact on global stock markets, which have become increasingly reliant on the tech sector’s growth.

7. The crash of a major bank’s stock price could have wider implications for the financial sector as a whole, impacting access to credit for businesses and individuals, which could slow economic growth and have a broader impact on the global economy.

Impact on the Indian economy

The impact of the crash of Silicon Valley Bank’s stock price on the Indian economy is likely to be major, given India’s growing tech sector and its strong ties to the global economy. 

Here are a few facts depicting how the crash could affect the Indian economy – 

1. The Indian tech business has strong ties to Silicon Valley, with many Indian startups and tech companies relying on funding and partnerships from the region.

2. The crash of a major player in the tech business’s banking sector could lead to a tightening of credit and a slowdown in investment, which could impact Indian startups and tech companies’ ability to raise capital.

3. The Indian stock market is heavily influenced by global trends, including the performance of the tech sector. A wider sell-off of tech stocks could impact Indian stock markets, leading to a downturn in investor sentiment and a slowing of economic growth.

4. Additionally, the Indian economy is increasingly reliant on the tech sector’s growth, with the sector accounting for a major portion of the country’s GDP. Any slowdown in the tech business’s growth could impact the wider Indian economy.

5. This crash of a major bank’s stock price could lead to increased regulation and scrutiny of the banking sector, impacting credit availability and leading to a tightening of lending standards. 

6. This could impact access to credit for Indian businesses and individuals, leading to a slowdown in economic growth.

Overall, the crash of Silicon Valley Bank’s stock price could have major implications for the Indian economy, especially impacting the tech business, the stock market, and access to credit.

Edited by Prakriti Arora