Silicon Valley Bank (SVB) collapsed on Friday (10 March 2023). US regulators had put it under the control of the US Federal Deposit Insurance Corporation.
If you never heard of Silicon Valley Bank, the bank is a startup focused lender whereby they lend money to US technology companies focusing on innovation. As of Q4 2022, the bank held an asset of $212 billion, $74 billion loans and $342 billion client funds.
What Happened to Silicon Valley Bank?
On 8th March 2023, Silicon Valley Bank announced it had sold off their Available for Sale (AFS) securities portfolio and it will attempt to raise $2.25 billion in new shares (public offering) to strengthen their financial position.
This triggered a panic among venture capital firms and companies to withdraw their monies from the bank. The depositors were withdrawing their money so fast that the bank was insolvent.
Below is the exact details of Silicon Valley Bank’s letter to stakeholders that triggered the crisis.
Silicon Valley Bank suffered because of Federal Reserve’s aggressive rate hikes to combat inflation. When interest rates were low and near to zero, the bank loaded up on long term Treasuries. The value of these assets fell when the Federal Reserve rose the interest rates, leaving the bank sitting on unrealized losses.
The Impact on Other US Banks
Besides Silicon Valley Bank, I am sure there are other banks out there that does the same way. Let us take a look at the share price of 3 major banks to see how investors have reacted.
Bank of America (NYSE:BAC)
JPMorgan Chase (NYSE:JPM)
The Impact on Singapore Banks
Below are the share price of Singapore 3 local banks (DBS, OCBC and UOB) and how they have reacted to the collapsed of Silicon Valley Bank (SVB).
DBS Bank (SGX:D05)
OCBC Bank (SGX:O39)
United Overseas Bank (SGX:U11)
My Opinion of Silicon Valley Bank Collapsed
The collapse of Silicon Valley Bank serves as a warning to investors that the interest rate hikes can have a negative impact on banks even though we are enjoying higher fixed deposit rates.
In my opinion, it is unknown how many banks out there (US or Singapore) held similar treasuries like Silicon Valley Bank and are suffering from unrealized losses.
As you observed from the above, the 1 month share price of US and Singapore banks are on a downtrend even before the collapse of Silicon Valley Bank (10th March 2023) or the announcement on 8th March 2023. In my opinion, investors are already cautious given the continuing interest rate hikes by the Federal Reserve.
In my stock portfolio, I held OCBC Bank but it only makes up 1.98% of my entire stock portfolio. Thus, any crisis in banks probably will not shaken my stock portfolio.
Nevertheless, such crisis could have a downstream impact as most companies borrow money from these banks. The take way is to invest in companies with zero debt or have a healthy cash balance to tide them through in event of such crisis.