The nation’s 16th largest bank, Silicon Valley Bank (SVB), just failed and went into receivership by the FDIC. Are we about to see another economic crisis along the lines of the dot-com bust in 1999 or the financial crisis in 2008? I hope not, but I won’t be surprised.
All the experts who didn’t see this this bank failure coming are also the ones now saying they don’t see any reason why SVB’s failure would be “contagious.” My observation over the years is that politicians and regulators tend to be heavily influenced and persuaded by the financial masters of the universe, while also barely understanding what gambles they are taking.
A very short summation of SVB’s failure is that it was awash in deposits, so it invested heavily in bonds. The market value of a bond goes down when interest rates rise, thus with rising rates the market value of those bonds subsequently decreased, and SVB did not hedge the interest rate risk. With the tech industry starting to struggle over the past year, SVB’s deposits started to decrease. To replace the departed cash, SVB had to sell bonds at a huge loss. SVB then went to the capital markets to try to raise more cash to prop up its balance sheet because of the bond losses. That spooked depositors who started rapidly withdrawing cash, and it also spooked investors who started dumping the stock. Last Friday the FDIC took control of the bank.
The bank apparently had about $175 billion in deposits, of which about $150 billion was not FDIC insured. (The FDIC insures up to $250,000 per customer at a bank.) Reports are that withdraws on Thursday March 9 alone were $42 billion. The bank failed the next day.
Investors are likely wiped out. The stock peaked at over $700 per share in October 2021, and was at $275 per share just a week ago before tumbling to $106 per share when trading was suspended. SVB was one of the stocks in the S&P 500, but it was replaced in that index on Friday.
Did I mention that experts really don’t understand what financiers are doing? CNBC’s stock market “expert” and carnival barker Jim Cramer was advising people to buy SVB stock just last month at $320 per share.
Did I also mention that federal regulators have too close a relationship with the financial wizards who can tank our economy? Unsurprisingly, the CEO of Silicon Valley Bank, Greg Becker, was a Director at the Federal Reserve Bank of San Francisco until the bank failed last week.
Speaking of CEO Greg Becker, whose total compensation in 2022 was estimated at $14.2 million, many of you are likely concerned how SVB’s failure might financially impact him. Like you, I am heartsick at the thought of Becker losing his 8-figure compensation package, but there is some good news for him, as he shrewdly sold over 12,000 SVB shares less than two weeks ago – shares that would now be worthless.
SVB Chief Sold $3.6 Million in Stock Days Before Bank’s Failure
Silicon Valley Bank Chief Executive Officer Greg Becker sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure. The sale of 12,451 shares on Feb. 27 was the first time in more than a year that Becker had sold shares…
Lucky timing, probably.
What is really scary is what happens to those with uninsured deposits at SVB. Roku is one of those depositors.
Roku says 26% of its cash reserves are stuck in Silicon Valley Bank [CNBC – 3/10/2023]
Roku has $487 million of cash and cash equivalents in uninsured deposits at failed Silicon Valley Bank, the streaming media company said in an SEC filing Friday.
About 26% of Roku’s $1.9 billion in cash was deposited with SVB, which was placed into receivership by the FDIC midday Friday. Roku shares fell over 4% after hours on the news.
“At this time, the Company does not know to what extent the Company will be able to recover its cash on deposit at SVB,” Roku said in a press release.
The significance of what happens as a result of SVB’s failure isn’t just the immediate financial impact, it’s also the behavioral impact that ricochets elsewhere. If large depositors lose some of their uninsured deposits, it could also cause bank runs at other banks. Plus, there has been a perception of a dot-com type tech bust happening. Will the failure of the flagship bank of tech culture serve as an accelerator for the decline of the tech industry?
There could be many ripples from SVB’s failure that we’ll only be able to see in hindsight. Or maybe there will be none. But when well-connected financiers start imploding, history tells me to be wary. I doubt FTX and Silicon Valley Bank will be the last big financial implosions in the news this year.
And finally, was Silicon Valley Bank another woke, left-wing corporation spouting off about diversity and decarbonization? Of course it was. From its 2022 Environmental, Social and Governance (ESG) Report
SVB’s ESG program centers on the positive impact its innovative clients make and is built around six strategic initiatives designed to support long-term sustainability for the company:
• Engaging and empowering employees,
• Building a culture of diversity, equity and inclusion at SVB,
• Championing inclusion in the innovation economy,
• Supporting its communities,
• Advancing the transition to a sustainable, low-carbon world, and
• Practicing responsible corporate governance.
Our ability to make a meaningful difference for people and the planet, and to address the systemic risk that climate change presents, is magnified by the outsized impact our innovative clients make.
Over the last 12 years, our Climate Tech and Sustainability and Project Finance teams, for example, have supported hundreds of companies that are working to accelerate the transition to a more sustainable, low carbon world.
There’s more:
Get woke, go broke.
Seriously, Silicon Valley Bank’s failure occurred at the intersection of net-zero, wokeness, asset-less tech companies riding a bubble, fancy financiers, and business/political corruption. They reap the rewards when their gambles pay off, then they pass the burden to taxpayers when their gambles fail. As a taxpayer I am fed up with bailing these people out.
[buck.throckmorton at protonmail dot com]