U.S. banks see their stocks plummet

Silicon Valley's SVB Financial Group sees record drop of 60%

U.S. bank stocks tumbled by the most in almost three years after a Silicon Valley-based lender took steps to shore up its capital position, stoking concern that soaring interest rates are eroding balance sheets across the financial industry.

The KBW Bank Index sank 7.7%, its biggest drop since June 2020. SVB Financial Group, a firm that specializes in venture-capital financing, was the gauge's biggest decliner, sinking a record 60% after it announced a stock offering and sold off a chunk of the securities in a portfolio that's been hit by heavy losses. Bank of America, Wells Fargo and JPMorgan Chase all slid at least 5%.

SVB's Silicon Valley Bank news is “the prevailing fear here,” Gary Tenner, an analyst at DA Davidson, said in an interview. “Is this the dam that has burst with regards to more banks raising capital? Is there more to come?”

Banks that accumulated loans and other investments when interest rates were low have seen the value of those assets erode amid the rapid rise of rates engineered by the Federal Reserve. At the same time, bankers have to compete harder to keep savers from defecting. This means banks have to pay more to keep customers in place — or else in some cases sell off some of those low-yielding assets at deep discounts to pay off the depositors. For smaller regional and community banks, losing deposits can be serious and weigh heavily on profitability.

Adding to the souring sentiment was Silvergate Capital Corp., which said it plans to wind down operations and liquidate after the crypto industry's meltdown sapped the company's financial strength.

“Bank stocks were already trading poorly this week after KeyCorp warned about elevated deposit betas and the selling intensified on Thursday thanks to the double whammy of Silvergate and SVB Financial,” Vital Knowledge founder Adam Crisafulli said.

And the competition for deposits is intensifying. Only about a quarter of the 425 basis-point increase in the Fed's benchmark had been passed along to depositors through the end 2022, according to Barclays Plc strategist Joseph Abate. Those bank rates are nearly 200 basis points