March 9, 2023, 12:04 pm EST
Investment Banks in Trouble
When the economic outlook is dismal, investment banks should suffer significantly.
Their investment portfolio focuses on emerging regions like China or money-burning start-up companies. This investment could bring in huge profits when successful. But, a high-risk-high-reward approach could also bring in a fatal loss if their big picture is wrong.
For example, SVB Financial Group (SIVB), the parent company of Silicon Valley Bank, plunged about –40% illustrating how bad it could be for S&P 500 components in Silicon Valley, Santa Clara California since 1983.
Recently, the failure of Silvergate Capital from Cryptocurrency mania resulted in winding down its business. Similarly, SIVB is short of cash so it has to trigger a $1.75 billion share sale in order to collect cash. Lack of investment, dismal IPOs, and failed startup result in a tough time for SIVB which went through many up and down in the past 40 years.
Many other banks also feel the pains: FRC -13%, ZION, SBNY -8%, SCHW -7%, CMA -5%, BAC, JPM -4%.
When investment banks struggle, it is a signal for a difficult time ahead.