European banking stocks sold off sharply Friday as jitters surrounding U.S. bank SVB Financial — which plunged 60% Thursday — spread around the world.
It followed an announcement by the tech-focused lender of a capital raise to help offset bond sale losses.
The Euro Stoxx Banks index was on pace for its worst day since June, down almost 4% at the provisional market close, led by a decline of around 7% for Deutsche Bank. Banco Sabadell dropped over 5%, Societe Generale shed 4.7%, and ING fell 4.8%.
Silicon Valley Bank is heavily focused on startup firms, particularly venture-backed tech and life sciences companies in the U.S. The 40-year-old company was forced into a fire sale of its securities on Wednesday, dumping $21 billion worth of holdings at a $1.8 billion loss while raising $500 million from venture firm General Atlantic, according to a financial update.
The company said in a letter from CEO Greg Becker on Wednesday that it had sold “substantially all” of its available-for-sale securities and was aiming to raise $2.25 billion through common equity and convertible preferred shares.
The U.S. Federal Reserve has hiked interest rates aggressively over the past year, which can cause long-dated bond values to fall, and SVB plans to reinvest proceeds from its sales into shorter-term assets.
Billionaire investor and Pershing Square CEO Bill Ackman said in a tweet late Thursday that should SVB fail, it could “destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash.”
“If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered,” he added.
Russ Mould, investment director at British investment platform AJ Bell, said SVB’s announcement should not have come as a “major surprise” after a period in which “appetite from lenders and investors towards this part of the market has dried up.”
“However, in a heavily interconnected banking industry it’s not so…
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