Silicon Valley Bank Meltdown Hits Healthcare Sector As Well

The Federal Deposit Insurance Corporation (FDIC) closed Silicon Valley Bank, the banking arm of SVB Financial Group SIVB, on Friday and took control of all its insured deposits.

"All insured depositors will have full access to their insured deposits no later than Monday morning," the FDIC said in a written statement. "The FDIC will pay uninsured depositors an advance dividend within the next week."

For the unversed, the saga began last Wednesday when SVB, in an investor prospectus, said it needed the proceeds to fill in a $1.8 billion hole caused by the sale of a $21 billion loss-making bond portfolio primarily of U.S. Treasuries, according to Reuters.

The portfolio was yielding an average 1.79% return, far below the current 10-year Treasury yield of around 3.9%

Related: Silicon Valley Bank's UK Arm Bought By HSBC For About $1.

Silicon Valley Bank provides financial services for several healthcare players, including early-stage biotech companies. 

Last year, SVB handled financials for 44% of U.S. venture-backed technology and healthcare initial public offerings, according to the bank's Q4 earnings presentation.

Biotech stocks skidded 1.1% on Wednesday and an additional 2.6% on Thursday. Venture-backed health companies account for 12% of SVB's $173 billion deposits and 36% of $168 billion in funds held off balance sheets as of year-end, Bloomberg notes.

CNBC writes that Silicon Valley Bank's failure also hit the biotechnology sector. SVB was a vital lifeline and conduit to Wall Street finance for some biotech companies, especially smaller, less-tested startups. SVB also held some of the companies' cash on hand.

"Within biotech, SVB has been heavily involved in the investment banking activities of numerous companies," a note out Friday from analysts led by Bank of America's Jason Gerberry noted.

The SPDR S&P Biotech ETF closed down 3.9%, while the Nasdaq Biotechnology Index fell 1.6%. The iShares Biotechnology ETF slipped 1.6%.

Posted In: BiotechNewsSector ETFsHealth CareMarketsETFsGeneral
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