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Silicon Valley Bank / SIVB

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SVB Financial Group stock tumbled more than 42% in premarket trades Friday on fears of a run on the bank, as analysts downgraded the company and reports surfaced of funds advising clients to pull their money from the parent company of Silicon Valley Bank.

Founders Fund, the San Francisco-based venture-capital fund co-founded by Peter Thiel, has advised companies to pull their money, according to a Bloomberg News report citing people familiar with the matter.In a separate development, The Wall Street Journal reported that SVB Financial Group took out $15 billion of loans from the Federal Home Loan Bank of San Francisco at the end of 2022, compared to zero in the year-ago period, to assure liquidity.

The bank pledged collateral of about three times what it borrowed to back the advances, the WSJ reported, around the same time it sustained a 13%, or $25 billion decline in deposits in the final three quarters of 2022, the WSJ reported.

The steep losses Friday came after SVB Financial SIVB, ended down 60% in the regular trading day after it disclosed large losses from securities sales and announcing a dilutive stock offering along with a profit warning. The bank was unprepared for rising interest rates which have hit its net interest income and net interest margin

the troubles at SVB seemed unlikely to spread widely throughout the banking system. Morgan Stanley said in a note to clients that SVB’s issues were “highly idiosyncratic.”
Also on Wednesday, SVB announced it sold $21 billion worth of securities to raise cash and reposition its balance sheet toward assets with a shorter duration, which are less exposed to rising interest rates. SVB estimated that it took a $1.8 billion loss on that sale.

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BANK OF ENGLAND: WE INTEND TO APPLY TO THE COURT TO PLACE SVB UK INTO A BANK INSOLVENCY PROCEDURE.

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Bill Ackman Warns of Massive Bank Runs
The hedge fund manager says that it is likely that Silicon Valley depositors will have access to around 50% of their funds on Monday, but the remaining 50% will not be available for 3-6 months. The next few days are shaping up to be critical for Silicon Valley Bank customers and its regulators.

The latter shut down the bank, which was the go-to lender for startups and many Silicon Valley businesses, including California wineries and farmers.

SVB’s failure, which was the second-largest of a bank in U.S. history, on March 10, has shaken many investors. It was the result of a bank run, caused by the bank’s announcement that it planned to raise $2.25 billion by issuing new common and convertible preferred shares to shore up its finances, after it sold bonds in its portfolio of investments at a $1.8 billion loss.

About $42 billion of deposits were withdrawn by the end of March 9, according to a regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing.

The Federal Deposit Insurance Corporation took control and is now the manager of $175 billion in customer deposits, including money from several startups and from some of the biggest names in the technology world.

The regulator also created a new entity, and indicated that unsecured depositors, that is, SVB customers with more than $250,000 in their accounts, will not, for the moment, have access to their money. This leaves many uncertainties about the ability of many startups to operate in the coming weeks, since their funds are locked up. The FDIC said it will pay uninsured depositors an "advance dividend within the next week."

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Michael Burry Warns of Another Major Bank Collapse
he says Silicon Valley Bank is Enron, and WorldCom should follow. Enron and WorldCom collapsed within months of each other in 2001 and 2022, rocking global markets. Global markets have been holding their breath since Silicon Valley Bank was shut down on March 10 by regulators.

Investors wonder if there will be a contagion. Are there any other banks that will follow? At the same time, behind the scenes, regulators scramble to prevent many startups and small businesses that were SVB customers from running out of the cash they need to pay their employees and suppliers and continue to operate.

The Santa Clara, Calif.-based bank was the go-to lender for startups whose operations it supported.

It was a central player in the innovation economy, by providing specialized financial services, industry expertise, a valuable network, and a strong reputation to startups. SVB also offered a range of financial services, tailored specifically to the needs of startups, such as venture debt, corporate banking and asset management. These services are designed to help startups manage their finances, optimize their cash flow and scale their businesses.

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FDIC Started Auction For Silicon Valley Bank In Attempt To Sell SVB Assets Before Monday

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Uninsured SVB deposits were being quoted at a price of between 55 and 65 cents on dollar, according to Cherokee Acquisition. Other deposits were being offered for between 70 and 75 cents on the dollar

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HSBC acquires Silicon Valley Bank's UK arm, Chancellor Jeremy Hunt confirms

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The Federal Reserve established a funding program for banks, making $25 billion available to eligible firms in a bid to avoid further banking liquidity issues.

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The repercussions of the failure of SVB and Signature Bank are still playing out. The stock prices of US regional banks are seeing enormous losses, but the large-cap banks are holding up relatively well, although still in the red.

Regardless the KBW bank index, an index of 23 listed banking names in the US, is down from nearly 116 at the start of this month to trade below 80 overnight.

Broader Wall Street steadied in the Monday cash session and futures are so far pointing toward a positive start to their day ahead.

APAC equity indices are all underwater with Japan leading the way lower. Sharp declines in banking stocks there dragged the TOPIX index down over 3% at one stage.

Given the pressure on the technology sector, it is no surprise that Korea’s KOSDAQ index is also notably lower, down over 2.5%.

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Silicon Valley Bank had no Chief Risk Officer for 9 months, from April 2022 until January 2023.

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BlackRock chief executive Larry Fink has raised the spectre of a “slow rolling crisis” in the US financial system following the failure of Silicon Valley Bank, “with more seizures and shutdowns coming” In his closely watched letter to investors and chief executives, the founder of the 8.6tn money manager said SVB’s collapse was an example of the “price we’re paying for decades of easy money”

Rapidly rising interest rates were “the first domino to drop” while SVB was an instance of the second, Fink wrote as he warned that other regional banks and investors who rely on leverage could also follow suit.

Fink said that swift regulatory action had helped stabilise markets after the biggest bank failure since 2008. But he nonetheless compared recent events to the 1980s savings and loan crisis, when more than 1,000 lenders collapsed.

“We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the US regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming,” he wrote.

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Silicon Valley Bank files for bankruptcy.

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FIRST REPUBLIC BANK SHARES TUMBLE 33% ON FRIDAY, DOWN 72% ON THE WEEK

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US authorities are considering expanding an emergency lending facility for banks in ways that would give First Republic Bank more time to shore up its balance sheet. First Republic’s stock has plunged more than 90% this month

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Silicon Valley Bank officially sold to First Citizens Bank

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Billionaire investor Ray Dalio has shared his thoughts on Silicon Valley Bank's failure, given some investing advice and warned of key geopolitical risks in his discourses across various media last month.

The Bridgewater Associates founder and investing veteran also offered up his thoughts on why he thinks the next two years will be a "very risky time".

"I was asked to share my thoughts about the Silicon Valley Bank situation. I want to convey that it's very indicative of what the whole economy is like. So there's its particular situation, and the Fed coming in and guaranteeing all depositors. But it's a common situation. It exists pervasively."

"I think that it is a very classic event in the very classic bubble-bursting part of the short-term debt cycle."

"Based on my understanding of this dynamic and what is now happening (which line up), this bank failure is a 'canary in the coal mine' early-sign dynamic that will have knock-on effects in the venture world and well beyond it."

"In my opinion we should be well-diversified. Keep in mind what I call "the holy grail" of investing, which is to have 10 to 15 good, uncoordinated return streams. Simply said: hold a well-balanced portfolio that holds both assets that do well when there are great productivity gains (equities, especially those that produce benefit from new technologies that produce leaps in productivity) and assets that do well when there is the devaluation of money."

"Let's remember that [the money/credit/debt/market/economic dynamic] is being accompanied by the internal conflict dynamic (most importantly the 2024 US elections that are coming up) and the external conflict dynamic (most importantly the US-China conflict and the US-NATO-Russia conflict, though others like that with Iran are notable). All of these conflicts affect each other."

"This setup implies to me that there is a significant risk that there will be 1) bad financial and economic conditions at a time of 2) bad internal conflict and 3) bad international conflicts—with the world being leveraged long. In a nutshell, it looks to me like the next two years will be a very risky time."

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The federal government’s rescue of two failed banks last month has drawn criticism from some lawmakers and investors, who accuse the Biden administration and the Federal Reserve of bailing out wealthy customers in California and New York and sticking bank customers in Middle America with the bill.

But new data help explain why government officials declared the failures of Silicon Valley Bank and Signature Bank to be a risk to not just their customers, but also the entire financial system. The numbers suggest that a run on deposits at those two banks could have set off a cascading series of bank failures, crippling small businesses and economic activity across wide parts of the country.

The analysis of geographic risks from a banking crisis, prepared at the request of The New York Times, was done by economists at Stanford University, the University of Southern California, Columbia University and Northwestern University.

The results show the continuing potential for widespread damage to the entire banking system, which has seen many banks’ financial positions deteriorate as the Fed has raised interest rates to tame inflation. Those rate increases have reduced the value of some government bonds that many banks hold in their portfolios.

Although the damage has so far been contained, the research shows that larger runs on banks vulnerable to rate increases could result in a significant drop in credit available to store owners, home borrowers and more. Because so many counties rely on a relatively small number of financial institutions for deposits and loans, and because so many small businesses keep their money close to home, even a modest run on vulnerable banks could effectively stifle access to credit for entire communities.

That sort of credit paralysis, the researchers estimate, could afflict nearly half the counties in Missouri, Tennessee and Mississippi — and every county in Vermont, Maine and Hawaii.
The analysis helps buttress the case that government officials were making based on anecdotes and preliminary data they had when they orchestrated the bank rescues during that weekend in March. As fears of a wider financial crisis mounted, the Fed, the Treasury Department and the Federal Deposit Insurance Corporation acted together to ensure depositors could have access to all their money after the banks collapsed — even if their accounts exceeded the ,000 limit on federally insured deposits. Fed officials also announced they would offer attractive loans to banks that needed help covering depositors’ demands.

The moves allowed big companies — like Roku — that kept all their money with Silicon Valley Bank to be fully protected despite the bank’s collapse. That has prompted criticism from lawmakers and analysts who said the government was effectively encouraging risky behavior by bank managers and depositors alike.

Even with those moves, the analysts warn, regulators have not permanently addressed the vulnerabilities in the banking system. Those risks leave some of the most economically disadvantaged areas of the country susceptible to banking shocks ranging from a pullback in small-business lending, which may already be underway, to a new depositor run that could effectively cut off easy access to credit for people and companies in counties across the nation.

Federal Reserve staff hinted at the risks of a broader banking-related hit to the American economy in minutes from the Fed’s March meeting, which was released on Wednesday. “If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline,” staff members were reported as saying, “then the risks around the baseline would be skewed to the downside for both economic activity and inflation.”

Administration and Fed officials say the actions they took to rescue depositors have stabilized the financial system — including banks that could have been threatened by a depositor run.“The banking system is very sound — it’s stable,” Lael Brainard, director of President Biden’s National Economic Council, said on Wednesday at an event in Washington hosted by the media outlet Semafor. “The core of the banking system has a great deal of capital.”

“What is important is that banks have now seen, bank executives have now seen, some of the stresses that the failed banks were under, and they’re shoring up their balance sheets,” she said.

But the researchers behind the new study caution that it is historically difficult for banks to quickly make large changes to their financial holdings. Their data does not account for efforts smaller banks have taken in recent weeks to reduce their exposure to higher interest rates. But the researchers note smaller and regional banks face new risks in the current economic climate, including a downturn in the commercial real estate market, that could set off another run on deposits.

“We have to be very careful,” said Amit Seru, an economist at Stanford Graduate School of Business and an author of the study. “These communities are still pretty vulnerable.”

Biden administration officials were monitoring a long list of regional banks in the hours after Silicon Valley Bank failed on March 10. They became alarmed when data and anecdotes suggested depositors were lining up to pull money out of many of them.

The costs of the rescue they engineered will ultimately be paid by other banks, through a special fee levied by the government.

The moves drew criticism, particularly from conservatives. “These losses are borne by the deposit insurance fund,” Senator Bill Hagerty, Republican of Tennessee, said in a recent Banking Committee hearing on the rescues. “That fund is going to be replenished by banks across the nation that had nothing to do with the mismanagement of Silicon Valley Bank or the failure of supervision here.”

Senator Josh Hawley, Republican of Missouri, wrote on Twitter that he would try to block banks from passing on the special fee to consumers. “No way MO customers are paying for a woke bailout,” he said.

The researchers found Silicon Valley Bank was more exposed than most banks to the risks of a rapid increase in interest rates, which reduced the value of securities like Treasury bills that it held in its portfolios and set the stage for insolvency when depositors rushed to pull their money from the bank.But using federal regulator data from 2022, the team also found hundreds of U.S. banks had dangerous amounts of deterioration in their balance sheets over the past year as the Fed rapidly raised rates.

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Seized assets from Silicon Valley Bank and Signature Bank are fetching 85 to 90 cents on the dollar

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Nearly 500 employees of Silicon Valley Bank found an ominous email in their inboxes Wednesday morning paired with a meeting with human resources that officially notified them their employment with the bank would be terminated.

The workers will continue to be paid through June 9, although their computer access was cut off shortly after the call. Severance details, they were told, would be coming to their personal email addresses soon.

“Some people are very upset. Some people are angry. Some people are sad, and some are just numb,” said one director-level SVB employee who asked to be anonymous because of concerns about employment repercussions. “The reality of it is the leadership can now go back to Wall Street and say we bought this failed bank and now we’re doing something about it.”

In a message to staff Wednesday morning, First Citizens CEO Frank Holding wrote that “it is increasingly clear that we must make decisions to right-size our scope and scale to remain competitive.” Client-facing positions, as well as the organization’s support team in India, he wrote, would not be impacted.

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SVB Financial Group has reached a deal to sell its investment banking division to a group led by some of its own top bankers, including Jeffrey Leerink, as well as a hedge fund, the Baupost Group, the firms said on Sunday.

The buyers will pay in cash and pay off 26mn of SVB Financial Group’s debt, according to court papers filed in conjunction with the transaction. The buyers will also assume deferred banker compensation liabilities and allow SVB Financial Group to keep 5 per cent of the investment bank’s equity.

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SVB Financial Approved to Sell Investment Bank Back to Founder for $100 Million

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Anthony Scaramucci’s SkyBridge Capital is among the asset management firms leading the bids for Silicon Valley Bank’s venture capital arm, with a sale expected in the coming weeks. SVB Financial Group, the former parent company of Silicon Valley Bank, is getting closer to a deal that will see the institution sell its venture capital arm SVB Capital.

According to a Sept. 15 report from The Wall Street Journal, which cited sources familiar with the matter, Anthony Scaramucci’s SkyBridge Capital and Atlas Merchant Capital are jostling with the San Francisco firm Vector Capital in the final stages of the bidding process.

Sources claimed that SVB’s venture capital arm could be sold off for between $250 million and $500 million, but warned that a final sale is not guaranteed and that it would still require the review of the creditor’s committee.

A decision on the sale is expected to come before the court in the coming weeks.
Notably, SVB Capital was not included in the SVB's overarching Chapter 11 bankruptcy proceedings, and the bank reportedly said that the outfit would continue its “ordinary course operation” of business despite being put up for sale.

SVB Capital is an investment capital platform that conducts a wide range of investments, including the backing of other major Silicon Valley venture capital firms such as Sequoia and Andreessen Horowitz (a16z).

As of December 2022, SVB Capital held $9.5 billion in assets across 20 funds and 760 companies, including blockchain analytics service Chainalysis.

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