Apollo Global among potential buyers of Silicon Valley Bank shares as contagion spreads.

YEREVAN (CoinChapter.com) – Appolo Global Management, an alternative asset manager with half a trillion dollars in assets under management as of March 2023, is looking to buy the shares of insolvent Silicon Valley Bank (SVB).

Apollo allegedly declined to comment on the size of the loan book, but SVB had nearly $74 billion of loans in Dec 2022. Meanwhile, the contagion spread after SVB clients’ en masse bank run. Here’s what happened.

Silicon Valley Bank bankruptcy – what happened?

According to a report late March 9, the Silicon Valley Bank (NASDAQ:SIVB) launched a $2.25 billion share sale. The Bank representatives asserted SVB needed the proceeds to make up for a $1.8 billion loss brought on by the sale of its $21 billion AFS bond portfolio consisting mostly of U.S. Treasuries.

As per a Reuters report, despite the Silicon Valley Bank collapse, the CEO Gregory Becker has been calling clients to assure them their money with the bank is safe. Moreover, the sources also asserted that several startups have been pulling out their funds from SVB as a “precautionary measure.” One of them wired all their funds out of the bank on March 9, but the transaction was left “pending.”

SVB officials did not comment on the information. But Becker told investors that lowering in deposits was the root problem. He asserted that while venture capital deployments have tracked the bank’s expectations, “client cash burn has remained elevated,” resulting in lower deposits than forecasted.

Meanwhile, there’s a constellation of reasons behind the sudden collapse, the Federal Reserve’s hawkish policies being one of them.

We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash-burn levels from our clients as they invest in their businesses.

read the letter.

Also read: The Rise and Fall of Silvergate, Once Crypto Market’s Favorite Bank

What was SVB’s intention?

SVB’s initial plan was to sell $1.25 billion of its common stock to investors, $500 million in convertible preferred shares, and $500 million of its common stock in a separate transaction to the private equity firm General Atlantic.

However, if the goal was to project stability and conservatism, the intention backfired. The SVB share sale announcement came hours after Silvergate Bank closed shop, which might have spooked investors. As a result, the SIVB shares fell over 60% ahead of the March 9 session but stabilized at $106 hours later.

Genevieve Roch-Decter, the chief executive of Grit Capital, also commented on SVB’s move.

As rates rose over the last year, the value of SVB’s bonds fell dramatically. And the bank had a choice: Ride out the ~3-year duration of its bonds with a yield far below the current Treasury rate, or sell at a loss and reposition the portfolio to maximize yield.

said Roch-Decter in a recent Twitter thread.

Moreover, the contagion could continue, as several other financial institutions saw their stocks plummet.

SVB bankruptcy could start a contagion

With around $212 billion in assets, SVB is less than a tenth the size of a banking giant, JPMorgan Chase & Co. However, the Silicon Valley Bank collapse threatens to start a wave of contagion among financial institutions.

For example, shares of the San-Fransisco-based First Republic (NASDAQ:FRC) sank over 16% following SVB, its lowest level since Oct 2020. Zion Bancorp shares (ZION) fell 12%. Meanwhile, major banks also felt the ripples, as Wells Fargo & Co (NASDAQ:WFC) shares slid 6%, and JPMorgan (NASDAQ:JPM) is down 5.4%.

In total, the SVB fiasco evaporated over $80 billion in stock market value from all 18 banks that are included in the US stock market S&P 500 banks index (SPXBK). As a result, the overall S&P 500 (SPX) tumbled 3% on March 9.

Moreover, SVB is a niche bank, mostly focused on startups, which already saw a deficit in venture capital funding due to growing recession fears.

According to Bloomberg News, SVB does business with almost half of all US venture capital-backed startups and 44% of US venture-backed technology and healthcare companies that went public last year. Thus, if Silicon Valley Bank announces bankruptcy, the effects will be far-reaching.

Also read: GCR says bye to Binance, withdraws $40M USDT – should traders follow?

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