How One Bank's Crisis Led To Four Of The Biggest US Banks Losing $52 Billion Market Value In A Single Day

In what is being seen as a signal of a possible crisis knocking at the door, four of the biggest U.S. banks, which are JPMorgan, Bank of America, Wells Fargo, and Citigroup, lost a mammoth $52 billion of market value on Thursday.

The bloodbath came as part of a broader fall across financial stocks and a 60% sharp fall in the stock of one of the US' biggest banks, SVB Financial Group.

4 Biggest US Banks Lose $52 Billion

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JPMorgan lost about $22 billion in market value on Thursday, Bank of America lost roughly $16 billion, Wells Fargo's market capitalization was down $10 billion, and Citigroup's market value was down $4 billion in a single day, as per a Wall Street Journal report.

US stock market indices Dow Jones fell 1.66%, Nasdaq composite fell over 2%, and S&P 500 too fell 1.85% yesterday. India's Sensex and NIFTY are also currently down around 1% each.

Reason Behind Bank Stocks Bleeding

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Bank investors were spooked by SVB Financial Group's decision to sell a large chunk of its securities portfolio at a $1.8 billion loss as it deals with an outflow of deposits, which more than halved the technology-focused bank's stock.

Investors dumped shares of SVB Financial Group SIVB, which fell 60.41% yesterday, and a swath of U.S. banks after the tech-focused lender said it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits, the report mentioned.

The KBW Nasdaq Bank Index notched its biggest decline since the pandemic roiled the markets nearly three years ago. Shares of SVB, the parent of Silicon Valley Bank, fell more than 60% after it disclosed the loss and sought to raise $2.25 billion in fresh capital by selling new shares.

Banks big and small posted steep declines. PacWest Bancorp fell 25%, and First Republic Bank lost 17%. Charles Schwab Corp. fell 13%, while U.S. Bancorp lost 7%. America¡¯s biggest bank, JPMorgan Chase & Co., fell 5.4%.

Thursday¡¯s rout is another consequence of the Federal Reserve¡¯s aggressive campaign to control inflation. Rising interest rates have caused the value of existing bonds with lower payouts to fall. Banks own a lot of those bonds, including Treasurys, and are now sitting on giant unrealized losses.

Large declines in value aren¡¯t necessarily a problem for banks unless they are forced to sell the assets to cover deposit withdrawals. Most banks aren¡¯t doing so, even though their customers are starting to move their deposits into higher-yielding alternatives. Yet a few banks have run into trouble this week, sparking fears that other banks could be forced to take losses to raise cash.

Also Read: Stock Market Investors Get Richer By Rs 5.5 Lakh Crore In Just 2 Days

What Next For SVB?

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SVB said late Wednesday it would book an after-tax loss of $1.8 billion on sales of investments and seek to raise $2.25 billion by selling a mix of common and preferred stock.

The bank¡¯s assets and deposits almost doubled in 2021, large amounts of which SVB poured into U.S. Treasurys and other government-sponsored debt securities. Soon after, the Fed began raising rates. That battered the tech startups and venture capital firms that Silicon Valley Bank serves, sparking a faster-than-expected decline in deposits that continues to gain steam.

Some venture capital investors have advised startups to pull their money out of SVB, citing liquidity concerns, according to people familiar with the matter.

SVB Chief Executive Greg Becker held a call Thursday, trying to reassure customers about the bank¡¯s financial health, according to people familiar with the matter. Mr. Becker urged them not to pull their deposits from the bank and not to spread fear or panic about its situation, the people said, as per the report.

The collapse of Silvergate Capital Corp., one of the crypto market¡¯s top banks, is a more extreme example of deposit flight. The California bank said Wednesday it would shut down after the crypto meltdown sparked a deposit run that forced it to sell billions of dollars' worth of assets at a steep loss.

¡°This is the first sign there might be some kind of crack in the financial system,¡± said Bill Smead, chairman and chief investment officer of Smead Capital Management, a $5.5 billion firm that counts Bank of America Corp. and JPMorgan among its holdings. ¡°People are waking up to the gravity that this was one of the biggest financial euphoria episodes.¡±

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