This morning's renewed pressure on the stocks and bonds of banks in the US and Europe should not come as a big surprise. Remember, only the SVB depositors are being made whole by the US and UK policy interventions. SVB equity holders and unsecured bondholders face large losses. Policymakers have taken the duration (not credit) risk off banks’ balance sheets and guaranteed all deposits (not equity and unsecured credit).It is not clear yet how depositors at small/regional banks will react.I suspect we should expect tighter regulation in future, especially as big banks get bigger. - Mohamid El-Erian
- SVB works with more than half of all U.S.-based startups and is the preeminent provider of venture debt in the industry.
- SVB grew at a breakneck pace, nearly doubling deposits in just a year. Total assets at its parent, SVB Financial Group, grew to $211 billion at the end of 2021, versus $116 billion a year earlier. By the end of 2022, SVB was the 16th largest lender in the U.S. (Reuters)
- As higher interest rates caused the market for IPOs to shut down for many startups and made private fundraising more costly, some SVB clients started pulling money out to meet their liquidity needs. This culminated in SVB looking for ways last week to meet its customers' withdrawals. (Reuters)
- To fund the redemptions, SVB sold a $21 billion bond portfolio consisting mostly of U.S. Treasuries. The portfolio was yielding it an average 1.79%, far below the current 10-year Treasury yield of around 3.9%. This forced SVB to recognize a $1.8 billion loss, which it needed to fill through a capital raise. (Reuters)
- SVB?announced on Thursday, March 9th?it would sell $2.25 billion in common equity and preferred convertible stock to fill its funding hole. Its shares ended trading on the day down 60%, as investors fretted that the deposit withdrawals may push it to raise even more capital. (Reuters)
- SVB clients pulled their money from the bank on the advice of venture capital firms such as Peter Thiel's Future Fund. This spooked investors such as General Atlantic that SVB had lined up for the stock sale, and the capital raising effort collapsed late on Thursday. (Crunchbase)
- SVB scrambled on Friday to find alternative funding, including through a sale of the company. Later in the day, however, the FDIC then announced that SVB was shut down and placed under its receivership. (Crunchbase)
- That left unresolved how thousands of companies in Silicon Valley’s intricately connected tech sector who banked at SVB and were unable to access their deposits would make payroll or pay vendors and rent, if those funds remained inaccessible. (Crunchbase)
- Banking regulators devised a plan Sunday to backstop depositors and protect financial institutions with money at SVB, a critical step in stemming a feared panic over the collapsed tech-focused institution. In an anxiously awaited announcement from the Fed, the central bank said it is creating a new Bank Term Funding Program aimed at safeguarding institutions impacted by the SVB failure. (CNBC)
- “Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” said a joint statement from Fed Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg. The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasurys, agency debt and mortgage-backed securities. . (CNBC)
- The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for the funding program.
- HSBC bought the UK arm of Silicon Valley Bank?for a symbolic one pound, rescuing a key lender for technology start-ups in Britain, as the biggest bank collapse since the financial crash continued to roil markets. The deal sees one of the world's biggest banks take the doomed British arm of the tech lender under its wing, bringing to an end?frantic weekend talks.
- Goldman Sachs' analysts said?they no longer expect the U.S. Federal Reserve to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March, in light of the recent stress in the banking sector. Goldman previously expected a 25-basis-point hike in March.
- Credit Suisse shares hit?a new record low in morning trading on Switzerland's stock exchange. Bank shares in Europe and Asia?plunged on Monday?as the collapse of startup-focused SVB continued to batter markets, while US large banks failed to hold onto a brief premarket rally after authorities moved to stem the contagion.
I'm not sure how the collapse of SVB is going to impact the recruiting market yet. SVB Securities Chief Executive Officer Jeff Leerink and his team are seeking help to finance a potential management buyout. If that does not work, many highly qualified SVB bankers may be looking for a new gig. Although the depository base is now safe, it is still uncertain how the loss of a major sector lender will impact the Tech community. Many startups may lose access to much needed long-term liquidity. As such, important projects may be pushed out. Asset values may drop and M&A activity may pick up. The stabilization of interest rates may also impact ability to finance LBOs across all sectors.
If you have been impacted by the situation at SVB or another firm please feel free and reach out to me directly at [email protected]
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