Risk of contagion?
These doubts triggered a panic among investors on Friday, with a run on the banks that was not limited to the SVB, but also extended to other lenders, mostly based in California, as if that were sufficient indication of vulnerability. So after the failure of a 2.25 billion dollar capital increase, while Svb was closed down by the authorities and placed under the control of the Fdic, the federal agency that insures deposits, PacWest Bancorp, First Republic, Western Alliance are also end up in the eye of the storm. Not only with the fall of shares on the Stock Exchange, where in the last two days Pacwet has lost 49%, Western Alliance 31% and First Republic 24%, but also with the onslaught of savers who asked to move their funds to safer institutions. So much so that both First Republic and Western Alliance have tried to calm investors by declaring that their cash and their deposits remain solid. When the markets reopen on Monday, it will begin to show whether the rapid intervention of the authorities has helped to reassure investors.
Sales Managers
It certainly isn’t a good sign to discover that SVB CEO Greg Becker sold $3.6 million of company stock as part of a trading plan less than two weeks earlier for the company to disclose the massive losses that eventually led to its bankruptcy. It was the first time in more than a year that Becker had sold shares in SVB Financial Group, SVB’s parent company, according to documents sent to the SEC.
The consequences
If the Silicon Valley Bank crash hits the ecosystem of hi-tech start-ups to which it provided credit, already suffering from the crisis in the tech industry and the rise in interest rates, Silicon Valley entrepreneurs and workers will also hi-tech are likely to pay the bill, with the risk of losing hundreds of jobs. In fact, the Fdic only insures deposits up to $250,000, and it is conceivable that the accounts were far beyond that ceiling. According to the Federal Reserve, however, only 93% of the SVB’s deposits were insured, hence the bank run when the problems started.
“The government has about 48 hours to correct a mistake that will soon be irreversible. By allowing @SVB_Financial to fail without protecting all depositors, the world has realized what an uninsured deposit is: an illiquid unsecured claim on a failed bank,” Bill Ackman, the billionaire investor manager wrote in a very long tweet. of hedge fund Pershing Square Capital Management. Evoking scenarios of a tragedy at the beginning of next week without government intervention. In the absence of JpMorgan, Citi or Bank of America, acquiring SVB before Monday’s opening is a prospect he deems “unlikely”. That’s why Ackman is asking the government to secure all Svb deposits, otherwise “the giant sucking sound you will hear will be the withdrawal of all substantially uninsured deposits from all but the ‘systemically important’ banks.
The first names of those involved in the closure of the bank also emerge. The US crypto-currency company Circle said on Twitter that $3.3 billion of its $40 billion in Coin reserves are held at Silicon Valley Bank. But other companies, including the listed Roku, Roblox and Quotient, have also communicated to the SEC, the US market supervisory authority, their exposure to the SVB.
Roku said it has approximately $487 million at Svbrepresenting about 26% of its cash holdings as of March 10, 2023. Gaming platform Roblox disclosed that approximately 5% of its $3 billion in cash and securities was held in SVB as of February 28, 2023. The company Omnichannel digital marketer and owner of Coupons.com, Quotient, revealed a minor impact, noting that it held $400,000 in Silicon Valley Bank UK, the UK-based SVB subsidiary.
Even in the rest of the world we are starting to deal with the bankruptcy of the Svb. In Great Britain, the Bank of England has also announced the insolvency procedure for the British branch of Silicon Valley Bank. The branch has a limited presence in the UK and does not represent a systemic problem in the country’s financial system, the British central bank said. Under UK insolvency proceedings, deposits of up to £85,000 (and up to £170,000 in the case of joint accounts) will be returned to clients. But according to press rumors, the Bank of London is reportedly considering making a bailout offer for the UK branch.
The reopening of the bank
Meanwhile, the FDIC is organizing the reopening of the bank, which employed 8,528 people at the end of 2022. The federal agency has already created a new bank, la National Bank of Santa Clara, for deposits and assets of SVB, operational since Monday to facilitate withdrawals by customers of the bankrupt institution. THE employees have already received a 45-day job offer at 1.5 times their salary by the Fdci. Workers will be recruited and briefed on weekend benefits, while healthcare will be provided by former parent company SVB Financial Group. Staff were told to continue to work remotely, except for essential workers and branch employees.