Rational thinking about the collapse of SVB, advice, and where we go from here

For all my friends and all the employees at Silicon Valley Bank or Signature Bank first and foremost, thank you for your courage, leadership, and resolve over the past several days. The last week has been one of the strangest in my career, but mostly, in the strange familiarity of the event. While SVB, Signature, and the other banks affected by the recent bank runs are unique situations, this is not new. We’ve been here before, and we’ll get through it again. With that, here are some thoughts from personal experience over my career.?

From 2000-2003, I worked at Banc One Capital Markets (BOCM)? focused on Asset-Backed Securitization (ABS). Asset-backed Securitization is the process whereby banks pool income-generating assets (mortgages, auto loans, student loans, etc.) into a portfolio to sell to investors.? Investors acquire the bond or note which pay income from the assets’ cash flows, which are considered highly secure and often backed by federal guarantees. Fannie, Freddie, Sallie Mae, etc. (We’ll come back to this later)?

One of my early projects while at BOCM, was consulting to the FDIC as they were evaluating the loan performance of NextBank, one of the first online lenders. Our analysis contributed to the FDIC's decision to shut down NextBank. Back to the opening paragraph, sadly this is not the first time the FDIC has stepped in to shut down a bank. Rest assured these decisions are not taken lightly. But we should all sleep better at night knowing there is an entity with the power to intervene in situations like this to ensure the financial wherewithal of our great country.?

After JPMorgan acquired Bank One in 2003, my immediate reaction was fear and a whole host of colorful language. As a team, we were sure that JPMorgan would let go of all of us. The end of our team and our time together. I remember colleagues literally putting on jackets, walking out the door, and not reporting back to work.? Long story short…everything turned out fine. We all landed on our feet. Some at JPM, others in new positions. In fact, this acquisition became the catalyst for me to reflect on the life and career I wanted, eventually leading to my master plan to start a venture fund in Michigan. So, Lesson #1 particularly to all the employees impacted: Change is an opportunity to dream. Don’t assume the worst.?

After the 2001 Dotcom bubble, the US Federal Reserve cut interest rates. As federal policies encouraged home ownership, a boom of subprime mortgages allowed borrowers, who otherwise might not have been qualified, to obtain home loans on generous terms. However, in 2004, the Federal Reserve raised interest rates, resulting in adjustments to mortgages beyond the borrowers’ ability to pay. Ultimately this was a major contributor to the real estate collapse in 2007 and the Great Recession.?

By 2006 I was at HSBC, which had acquired Household Finance, one of the largest subprime lenders and one of the most active ABS bond issuers. in 2007 HSBC was one of the first to announce it was losing billions on subprime mortgage losses (see more detail on the subprime mortgages, here). Building on the earlier paragraph about starting my career at in ABS, the irony is that I helped underwrite the mortgage backed ABS deals that nearly crippled the global economy starting in 2008. Family conversations changed from “I never knew what you did back then” to “So you were the one that blew up the global economy!” Not me personally, or individually, but yeah…the ABS industry from 2000-2003 was "dynamic and rapidly changing", a bit like today.?

Fortunately, the subprime mortgage bubble and Great Recession did not take down the global economy. We’ve been through a bank shut downs over the past 20 years. We’ve survived bank mergers and acquisitions. We also survived the Great Recession, which at the time was a national problem impacting almost every bank and millions of Americans.

This blog isn’t meant to be a full history lesson, but hopefully you can see the parallels between what happened over the last week and the crisis in 2008. Wildly different industries, but some of the same dynamics. Which brings me to Lesson #2: Rational minds (and markets) will ultimately prevail. Sunday, we saw the FDIC, Federal Reserve, and Treasury step in, because they used logic to create a reasonable solution.?

Finally, the next few weeks will be filled with operational hurdles. Lesson #3: Take the time you need to process. Give yourself permission to feel whatever you feel. Anger. Disappointment. Frustration. Fear. Relief. Resolve. Empowered. Whatever it is. Yes, you will need to figure out what comes next, in fact, most of the industry will need to take a deep breath and see how the dust settles. In the midst of the transition to new bank accounts, ensuring payroll, understanding new lines of credit, or how this impacted cash runway, remember to be patient and take the time to understand all the facts.?

Above all, treat each other with grace. Roll the music for R-E-S-P-E-C-T, but swap it out for E-M-P-A-T-H-Y. We’re all dealing with setbacks we never planned nor hoped to go through. So let’s do it together and we’ll be stronger because of it. Feel free to reach out if you’re looking for new roles in finance - we have several portfolio companies recruiting!