In the sordid saga of Silicon Valley Bank who are the losers, winners, saints, and sinners?
Losers
1. The management who all rightfully were fired for their gross incompetence. Particular note of CEO Gary Becker who really blew it.
2. The incompetent Board of Directors who failed to provide even a modicum of actual oversight.
3. The shareholders who owned the now worthless stock.
4. A goodly number of the employees who will lose their jobs in the latchup that follows hereafter.
5. The real estate lessors who leased space to SVB. All those leases will be cancelled in bankruptcy or insolvency.
6. The plethora of vendors who provided services to SVB who will now never be paid because of the bankruptcy.
7. The American taxpayers who will either directly or indirectly pay for this mess.
Oh, please stop, where do you think the FDIC gets its bloody money from? Where do the banks who pay their FDIC ransom get their money from?
8. Office of the Comptroller of the Currency whose bank examiners missed this disaster in the making for the last year.
These guys really need a public thrashing.
9. The United States of America as this will dampen the speed and scale of innovation.
SVB provided an excellent service to the cause of innovation. They just managed their Treasury portfolio sloppily.
Who have I missed? Tell me below in the comments.
Winners
1. The big winners are the venture capitalists whose portfolio companies (and they themselves) held massive amounts of their liquidity in uninsured deposits that will now be repaid by the action of the FDIC and the Biden admin.
There is something gross about VCs being protected when the vendors get screwed. Shame on y’all.
The billionaire VC gets protected whilst the landscaper gets hosed?
Standing behind the VCs are their limited partners — the pension funds and public funds whose money the VCs manage — who really could have had their asses handed to them.
2. Equally big winners are the startups who held those massive amounts of liquidity in uninsured deposits.
Some of y’all really need to take your Chief Financial Officers and Chief Executive Officers and Boards of Directors to the woodshed for concentrating your money in this bank. That was a huge mistake.
3. Anybody who had an uninsured deposit beyond $250,000 in Silicon Valley Bank.
4. Solvent, high quality banks who will benefit from the capital flight.
5. The Biden admin for dealing with what might have been a catastrophe, but will not be.
May be calling this a little early, but it feels like the FDIC, Treasury, and the White House dodged a bullet. Of course, they also caused it.
Saints
Haha, there are no saints.
1. I will give credit where it is due — Treasury Secretary Janet Yellen gets high marks for resolving this matter over the weekend thereby preventing a wholesale run on multiple banks come Monday.
Sinners
The sinners and the losers are generally the same with some distinctions.
1. The management again for forgetting why they had a bank charter — to take deposits and make LOANS. SVB was only 57% loaned up. Should have been 85% loaned up.
Those loans — with a 1% loan loss reserve — are probably OK and were undoubtedly priced using a floating rate mechanism so they bridge the rise of interest rates — the thing that killed the treasury portfolio.
If more of the bank’s money had been in loans they would not have had such a massive problem.
2. The management and the Board of Directors for allowing the excess funds of the bank to be concentrated in Treasuries and then failing to hedge their interest rate risk.
Gents, banks are designed to mitigate risk. You did nothing, you morons.
This is also a reflection of sheer financial laziness and everybody involved should get a tattoo saying, “I caused in part the failure of Silicon Valley Bank.”
3. The Board of Directors again that was not qualified for their jobs and who did nothing. These guys know nothing about the role of a bank board and they were not versed in the industry.
They were, however, diverse and up to speed on ESG and made more than $74,000,000 in donations and commitments to Black Lives Matter — a complete scam.
None of those diverse board members apparently knew spit about actual banking.
4. Venture capitalists who allowed all their startup portfolio companies to concentrate their funds in a single bank. WTF were you guys thinking?
5. Venture-capital-funded startup company Boards of Directors who similarly did not pay attention to the financial risk of concentrating funds in one institution.
6. The Biden admin for their feckless policies — War on Energy — that initiated a gigantic inflationary spiral that triggered the Federal Reserve to raise interest rates. It was this series of foolish policies that resulted in interest rates rising.
Bad policy begets bad outcomes.
7. The Treasury, the Office of the Comptroller of the Currency, and the multitude of bank examiners who failed to catch this fiasco at least a year in the making.
What the Hell were y’all examining?
8. Peter Thiel for allegedly starting the run on the bank.
9. The VCs who played into the run on the bank.
10. The whiny ass venture capitalists who cried like crocodiles over the weekend to save their collective bacon. Never, ever again use the men’s room, fellas.
11. Silicon Valley Bank CEO Greg Becker — a 40-year professional — who waited too long to raise capital, who announced a gigantic loss on the sale of bonds, and who projected weakness during this entire debacle.
Bottom line it, Big Red Car
Here it is, y’all:
1. This jug fuck was completely avoidable. SVB had plenty of capital. This was a garden variety run on the bank.
If the Board had been on its game and sent the CEO in search of capital six months ago, they would have taken a stock price haircut plus some dilution, but the bank would still be in business today.
2. The Feds have now issued the largest Get Out of Jail card in the history of finance. The moral hazard here is beyond belief.
3. This is all the result of bad fiscal policy emanating from the White House.
The WH declared War on Energy thereby triggering rising energy costs that impacted the price of everything thereby spiking inflation thereby forcing the Fed to raise interest rates to combat rising inflation.
Bad policy drives bad outcomes. Don’t y’all miss that Trump Economy? I do.
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.