- by James Clayton, Peter Hoskins and Annabelle Liang
- in San Francisco and Singapore
Shares of banks around the world tumbled after a crisis at a US bank sparked fears of a wider problem for the financial sector.
On Thursday, shares of Silicon Valley Bank (SVB), a major lender to technology start-ups, fell after it announced plans to shore up its finances.
It had an impact, with the four largest US banks losing more than $50bn in market value.
Bank stocks in Asia and Europe fell heavily on Friday.
Among UK banks, HSBC shares fell 5.6% and Barclay’s fell 3.5%.
On Thursday, SVB shares saw their biggest one-day drop on record as they fell more than 60% and were down 20% in after-hours trading.
The decline came a day after the bank announced a $2.25bn (£1.9bn) share sale to shore up its finances.
But what is more worrying for the bank is that some start-ups with deposits have been advised to withdraw.
Hannah Chlkowski, founder of Blank Ventures, a fund that invests in fintech, told the BBC the situation was “wild”. She is advising companies in her portfolio to withdraw funds.
“It’s crazy how it’s settled this way. Interestingly, it’s the most start-up friendly bank and has been so supportive of start-ups through Covid. Now VCs are asking their portfolio companies to pull their funds.” asking for,” she said.
“It’s cruel,” she said.
An important lender to early-stage businesses, SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock exchanges last year.
The SVB did not immediately respond to a BBC request for further comment.
In the broader market, there were concerns about the value of bonds held by banks as rising interest rates made those bonds less valuable.
Central banks around the world – including the US Federal Reserve and the Bank of England – have sharply raised interest rates as they try to curb inflation.
Banks hold large portfolios of bonds and are sitting on significant potential losses as a result. A decline in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them.
But, if lenders, like Silicon Valley Bank, have to sell their bonds at a loss, this can affect their profits.
Ray Wang, founder and chief executive of the Silicon Valley-based consultancy Constellation Research, told the BBC: “Banks have been hurt by rising interest rates.”
He said, “Nobody at Silicon Valley Bank and many other places thought these interest rate hikes would last. And I think that’s exactly what happened. They made the wrong bet.”
Ross Mold, investment director at AJ Bell, said the ripple effect of the problems at the SVB showed these types of incidents “often indicate weaknesses in the wider system”.
“The fact that SVB held shares as well as the fire sale of its bond portfolio raises concerns.
“Too many banks hold large portfolios of bonds and rising interest rates make these less valuable – SVB’s position is a reminder that many institutions are sitting on large unrealized losses on their fixed income [bond] Holdings.”