C_NCENTRATE 922: SVB what happened (and what happens next), future food, air electricity, super-aged nations +++
SVB: 48 HOURS FROM $15B MARKET CAP FDIC RECEIVER
THE OVERVIEW: Twitter broke, Meta plans to cut another 13k people, Microsoft made Outlook free to use on Mac (no subscription required), the White House appears to be getting tougher on apps like TokTok, WeightWatchers is acquiring telehealth company Sequence, Amazon’s ad business is bigger than the entire media industry, Silvergate Capital went into liquidation, Elon apologised after mocking a disabled employee, Biden’s FCC nomination pulled out, Google I/O will be May 10, Twitch updated its nudity policy to ban synthetic non-consensual exploitative images, Ring turned over cam footage of inside a user's home and business after a judge's warrant gave police access to investigate a neighbour, and Spotify launched a massive redesign.
THE BIG NEWS: Silicon Valley Bank, for many, was an integral part of the global (but in particular, US and UK) tech innovation economy. At its failure SVB was the 16th largest bank in the US; much is still unclear about what happened and what happens next.
The key is a lack of fraud. SVB invested in bonds, high interest rates significantly constrained tech companies, which cut the value of tech stocks and made it much harder to raise funds, SVB were exposed because of being tied to startups, and a run on the bank was caused by jittery investors and was allegedly exacerbated by individuals with ulterior motives.
How did this happen? Bad management. CEO, Gregory W. Becker, allowed issues with held-to-maturity bonds in January 2023, sold +$3m of stock recently, lobbied against dot frank sold and allowed there to be no Chief risk officer between April 22 and January 2023. While none of this is smart, there are rumours and rumblings that the fall would not have been as bad if certain actors had not pounced when cracks appeared to knock out portfolio company competitors possibly. Expect more to come to light on this in the coming days. One thing is clear, the FDIC acted unusually quickly, which tells you the severity of the collapse and the potential domino effect bad handling could cause.
Customers with <250k with them will recoup their funds; those with massive exposure (including Circle with +$3B) will have a much rougher time. Aside from bridge loans, VCs aren’t going to want to prop up everyone forever.
Will this bring down other banks? No. The system is just better regulated and secure than before 2008. Is this a black swan event? Yes. The issue is what happens next. It’s too early to say while the FED (and governments worldwide) are rallying to get people their money and keep things afloat. Sadly, there are already reports of suicides as individuals see their entire fortunes wiped out.
The options are pretty simple; a white knight or someone buys them (JP Morgan is most likely in US, Barclays is being courted in the UK, although Elon also popped out of his Twitter hole to say he’s open to it), liquidation (not good), but anything could still happen. There will be many unintended consequences, but expect stories about previously stable companies pulling back growth plans, etc. The issue? The FDIC need to sign off on any potential buyer.
SO WHAT?
__ DO __ Know that fewer banks are not good for competition. Who saves SVB matters for the tech industry's future on both sides of the pond. Perception is the most powerful issue here; who would now put their money in a regional bank? // __ DON’T __ Ignore the potential for disruption to allow bad behaviours. The biggest issue caused by this will likely be layoffs - overt or stealth. If companies were looking for another reason to cut, they have found it.
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