$SIVB was already down $100+ in after hours on Wed after company’s mid quarter update. Except for traders, no one had any idea this was even happening. VCs & Depositors won’t even become aware of this for another twelve hours. But the traders were on to something. There was a lot of chatter in trading rooms and finance threads about how ‘shareholder equity is zero’ due to their announcement of selling assets at a loss and the capital raise via secondary offering.
What is shareholders equity? On a balance sheet, Assets = Liabilities+Shareholders Equity. For $SIVB Assets were all of their long term Bonds & Liabilities were the customer deposits. If Assets are down big then (assuming Liabilities are mostly flat) the only way to ‘balance’ the balance sheet is for Equity to be $0
No trader wants to hold shares in companies with $0 of Shareholders Equity. Hence the massive self off Wed AH. The VC may have exacerbated the sell off on Thursday but they were not the reason this started. So what’s happening now? Traders are thinking that the balance sheet of other banks may also have $0 of shareholder equity. No way only SIVB had this problem on their balance sheet. Continued downward pressure on banking stocks until this resolves itself. Makes sense?
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