Short sellers make $500 million on Silicon Valley Bank's collapse: Report

SVB Financial Group’s record plunge on Thursday minted short sellers roughly half a billion dollars in paper profits, according to a report.

However, they now a face a challenge: how to close their positions.

On Thursday, the stock of SVB plunged by about 60 per cent as concerns mounted over the bank's operation, netting traders who bet against the stock a one-day mark-to-market profit of roughly $513 million, a Bloomberg report said.

The stock fell another 63 per cent in premarket trading Friday before being halted, with the Federal Deposit Insurance Corp. ultimately announcing that it had seized the bank.

As per the report, SIVB’s closure gives short sellers a windfall profit, but now they have to go through the sometimes-difficult process of liquidating their positions and realising their mark-to-market profits, said S3 Partners head of predictive analytics Ihor Dusaniwsky.

“With stock borrow financing costs accruing daily, even on weekends, even though trading is halted there is a continuous reduction of profits until short sellers close out their positions and return their borrowed shares.”

On Wednesday, the SVB Financial Group announced that it was raising $2.25 billion in a share sale. It said in an investor prospectus it needed the proceeds to plug a $1.8 billion hole caused by the sale of a $21 billion loss-making bond portfolio consisting mostly of US Treasuries.

The portfolio was yielding it an average 1.79 per cent return, much lower than the current 10-year Treasury yield of around 3.9 per cent, according to Reuters.

Following this, the 16th largest bank in the US failed following a run on deposits after its parent company's share price crashed a record 60 per cent on Thursday.

The Silicon Valley Bank episode marks the second-biggest US commercial bank failure since Washington Mutual, which collapsed at the peak of the 2008 financial crisis.

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