Heavy trading in SVB Financial Group’s
SIVB,
-60.41%
debt pulled its BBB-rated 10-year bonds as low as 31 cents on the dollar on Friday after subsidiary Silicon Valley Bank was closed by regulators, marking the biggest bank failure since the financial crisis.
The Santa Clara, Calif.–based financial-services company has been reeling in recent days, with both its stock and bond prices hit hard, after it on Thursday disclosed a $1.8 billion loss from a sale of about $21 billion in securities.
Its bond prices lost further ground Friday after the California Department of Financial Protection and Innovation closed Silicon Valley Bank, placing the Federal Deposit Insurance Corp. in control of its assets.
Silicon Valley Bank had an estimated $209 billion in total assets and about $175.4 billion in deposits as of Dec. 31, according to the FDIC.
SVB Financial’s 4.57% bonds due April 2033 traded as low as 31 cents on the dollar on Friday in heavy trading, according to BondCliq. Since the low, the debt traded up to 41.5 cents. A week ago it was fetching 90 cents. Prices on U.S. corporate bonds below 70 cents on the dollar are broadly considered distressed.
Worries about distress at Silicon Valley Bank, and potential risks in the broader distress in the banking system, have weighed on shares and the debt of financial companies.
Bonds in the financial sector were broadly under pressure Friday, including debt issued by Bank of America Corp.
BAC,
-0.94%,
JPMorgan Chase and Co.
JPM,
-4.72%,
Goldman Sachs Group Inc.
GS,
-3.09%,
Morgan Stanley
MS,
-5.09%
and other major banks, according to BondCliq.
Shares of the Invesco KBW Bank ETF
KBWB,
-3.20%
were down 15.5% on the week through Friday, with some investors expressing concern about potential cracks in the financial system following a year of aggressive interest-rate hikes by the Federal Reserve.
See: Treasury monitoring a few banks ‘very carefully’ amid Silicon Valley Bank’s woes, Yellen says
Barclays analysts said Friday that they viewed the collapse of Silicon Valley Bank as an “isolated event, but that it still “raises risks of broader distress within the banking system” that could throw cold water on talk of a Fed interest-rate hike in March of 50 basis points vs. 25 basis points.
“Indeed, the possibility of capital losses at other institutions cannot be completely dismissed, with rising policy rates raising banks’ funding costs, more elevated longer-term rates exerting pressure on asset valuations, and potential loan losses related to idiosyncratic credit exposures.”
Shares of SBV Financial were halted Friday, but they are down about 54% on the year, according to FactSet. The S&P 500 index
SPX,
-0.70%
fell 1.5% Friday, while the Dow Jones Industrial Average
DJIA,
-0.87%
lost 1.1% and the Nasdaq Composite
COMP,
+0.05%
was closed down 1.8%.
Deep Dive: 20 banks that are sitting on huge potential securities losses—as was SVB
