The abrupt failure of Silicon Valley Bank, which spent years carving a wide niche in the technology industry, sparked a selloff among other banks that also have exposure to the same once-fast-growing sector.
Shares of Western Alliance Bancorp, PacWest Bancorp, Signature Bank and First Republic Bank closed the day down between 16% and 38%. Trading in the four banks’ stocks was halted Friday when shares in each of the companies fell to their lowest levels since 2020.
The declines far exceeded the share-price losses of U.S. banks overall. The KBW Nasdaq Banking Index, which serves as an industry benchmark tracking large and regional banks, closed down less than 4%.
The shutdown of Silicon Valley came less than 48 hours after the banking arm of SVB Financial Group in Santa Clara, California, sold a large portfolio of securities at an after-tax loss of $1.8 billion and announced a capital-raising plan that ultimately failed to close.
The company has been steeped in deposit challenges for much of the past year due to a downturn in the venture capital investments, which led to outflows of noninterest-bearing deposits.
Silicon Valley Bank’s demise raised questions about the level of risk at other banks that hold tech-related deposits. First Republic, PacWest, Signature and Western Alliance were the only U.S. banks that had stock trading halted on Friday.
At Phoenix-based Western Alliance, about $6.5 billion, or around 11%, of the company’s total deposits, are tied to the technology industry, according to the company. Meanwhile, close to 30% of deposits are tech-related at PacWest, the Los Angeles-based parent company of Pacific Western Bank, according to Gary Tenner, an analyst at D.A. Davidson.
“Not that their exposures should be ignored, but it feels like the [stock price] reaction is overdone, especially for the second day in a row,” Tenner said Friday in an interview with American Banker.
In response to the failure of Silicon Valley, both Western Alliance and San Francisco-based First Republic sought to assure investors Friday that they remain on solid ground.
Western Alliance said in a press release that its deposits, liquidity and capital positions remain strong. The company’s total deposits have increased by $7.8 billion since the end of 2022, and they currently total $61.5 billion, Western Alliance said. At the same time, its tech-related deposits have dropped by $201 million so far this quarter, the company noted.
At First Republic, technology-related deposits represent about 4% of total deposits, and the bank maintains strong capital and liquidity positions, the company said Friday in a regulatory filing. In addition to its “strong and very-well diversified” base of deposits, the bank said it has more than $60 billion available to borrow from the Federal Reserve and the San Francisco Home Loan Bank.
The banks that watched their stock prices plummet after news of Silicon Valley’s collapse could be the same ones that benefit when the failed bank’s customers move their money elsewhere, one analyst noted.
“You have to assume that all of those Western banks that are players in California could pick up business,” Chris Marinac, an analyst at Janney Montgomery Scott, said in an interview Friday.
The nation’s largest banks, too, could benefit from an influx of deposits that were formerly held at Silicon Valley Bank, said Casey Haire, a Jefferies analyst who has covered SVB Financial since 2009. He ticked off names such as JPMorgan Chase and Bank of America.
Technology companies may choose to place their deposits with the “too big to fail crowd … out of an abundance of caution,” he said.
Like Silicon Valley Bank, where just 2.7% of deposits met the requirements for deposit insurance in the fourth quarter of 2022, some of the other banks that saw big stock price declines on Friday have relatively small shares of their deposits in accounts with less than $250,000, according to an analysis by RBC Capital Markets.
About 6% of New York-based Signature’s $88.6 billion in deposits were in accounts with less than $250,000 in the fourth quarter, RBC said. The percentage of deposits covered by insurance was 19.2% at First Republic and 23.2% at Western Alliance, according to the analysis.
Meanwhile, PacWest was around the industry midpoint, with deposits less than $250,000 accounting for 40% of its total deposits, the RBC Capital Markets analysis found.
Tenner, who covered bank failures during the financial crisis, said the shutdown of Silicon Valley Bank “feels different [than earlier failures] because of the speed from start to finish of the whole thing.”
“Back in the financial crisis, where banks were failing, there was a little more foresight because it was a credit-driven event and people had a view of who was suffering more than others,” he said. “[SVB] was effectively a 36-hour illness that went the wrong way — straight to the morgue.”
Should bank stocks like Western Alliance and PacWest decline again on Monday, it would show “there’s a great deal of fear and uncertainty in the market,” Tenner said.
