It was on Friday when the federal government took an action against the Silicon Valley Bank (SVB). It was reported that the SVB was taken over by the federal government.
Huge shock waves were sent across the biotech stocks and the medical sector as they were both hammered by the seizure of the SVB.
SIVB’s Role in the Medical Sector
The parent company of the Silicon Valley Bank is SVB Financial Group (SIVB). The particular company is known for providing services to several companies from the medical sector.
Several healthcare players from the medical sector are supported by the SIVB. The company also provides support to biotech companies that are in the early stages of running their businesses.
It was on Friday when the Federal Deposit Insurance Corporation went after the Silicon Valley Bank. They not only closed down the bank but also took full control over the assets that were in its possession.
According to the sources, even the insured deposits were taken over by the Federal Deposit Insurance Corporation.
Statement Issued by the FDIC
Following the takeover, the FDIC officials released a statement pertaining to the matter. They stated that no later than the morning of Monday, the depositors of the insured accounts will be able to gain access to their deposits.
As for the uninsured depositors, they will be paid by the FDIC in the following week. They will be paid an advance dividend in the due course.
A Great Panic was Caused
With the news coming out, the entire stock market faced widespread panic. It was especially the Biotech/Medical-Biomed industry group of IBD that saw a great tumble.
The latest stock market data shows that a collective 3.5% tumble was witnessed for the 800-plus stocks.
Following the announcement by the FDIC, the SVB Financial Group’s shares went into a state of pause. The particular stock exchange was forced to do it because the share prices for the group had plunged by 62.8% in the Friday session.
Performance of Biotech Stocks
The entire drama began on Wednesday when the officials at the Silvergate Bank made an announcement about their business’s liquidation.
They announced that they would proceed with the sale of their stocks as well as the convertible shares that they preferred.
The banking officials revealed that they had decided to do it in order to generate enough funds to fill the $1.8 billion hole that had been formed.
The bank was holding a great number of securities that were sold by the clients as they were going for the exit.
As the bank revealed that it was facing a financial crisis, all major clients started to exit its platform. Several major venture capitalists were also seen exiting the bank, making the matter worse for the banking firm.
As a result, the share prices for the Biotech companies started to pull. The report shows that on Wednesday, the share prices for the Biotech companies plummeted by 1.1%.
Then on the following day (Thursday), the share prices for the Biotech companies plunged by 2.6%.
Early-Stage Businesses are in Trouble
The news of the SVB going down is a huge blow for the entire early-stage businesses in the Biotech sector.
According to statistics, 44% of the total early-stage Biotech firms in the United States were backed by the SIVB. The venture capitalist firms were responsible for backing the initial public offerings of healthcare and technology startups.
It is quite surprising that while most of the major biotech and tech startups were exposed to the SVB, the small and medium-level startups were not. They have revealed having little to no exposure to the SVB.
Stock Price Movements in the Banking Sector
Like the Biotech sector, the Banking sector has also witnessed a great plunge due to the entire SVB saga.
The report shows that Signature Bank, First Republic Bank, Western Alliance Bancorporation, and PacWest Bancorp, from 15% to 38% share price declines were the worst performers.
The share prices for the banks under IBD such as Banks-Northeast, Banks-West/Southwest, and Banks-Super Regional tumbled by 3.5%, 3.7%, and 2.5%, respectively.