Fear overtook Wall Street Thursday after SVB Financial Group, a bank that lends primarily to tech companies, told investors it had to sell $1.75 billion in shares at a loss in order to cover rapidly declining customer deposits.
That triggered losses across the banking sector and concern that the Federal Reserve’s interest rate hikes are preventing banks from raising capital.
Bank stocks fell by their largest levels in nearly three years on Thursday, bringing all three major indexes down with them.
The Dow closed lower by 543 points, or 1.7%. The S&P 500 fell by 1.9% and the Nasdaq Composite was down 2.1%.
Silicon Valley-based SVB notched the largest decline in the sector, down by more than 60%, as CEO Greg Becker said the bank could be dealing with problems for some time to come.
Shares of JPMorgan Chase dropped by 5.4%, Bank of America fell 6.2%, Wells Fargo was down 6.2% and Citigroup was 4.1% lower.
When interest rates were near zero, large banks scooped up Treasuries and bonds. Now, as the Federal Reserve hikes rates to fight inflation, those bonds are worth much less and banks are sitting on the losses. For SVB, which said it is partnered with nearly half of all venture-backed tech and health care companies, cash-hungry startups are feeling the pinch.
Investors were also rattled ahead of Friday’s key employment report from the Labor Department, which they hope will provide some clarity on the Fed’s next policy moves.