Silicon Valley Monetary institution meltdown: Contagion risk or contained?


Concerns growing over the stability of what was a tech focused lender in the valley many called it the backbone of Silicon Valley it lost nearly two billion dollars selling assets following a greater than expected decline in deposits but here's the problem Venture capitalists reportedly advising their portfolio companies to pull their money.

From the bank those concerns of course Rippling through the banking sector the KBW Bank index posted its biggest drop since the pandemic Regional Banks uh Comerica key Corp and U.S Bancorp hit hard as well you're looking at those stocks this morning we're going to discuss this right now because of the potential for contagion risk Houston. banking reporter good morning to you I to me it's not even clear to me that um you know Silicon Valley Bank unto itself would be a problem insofar as when you have people like Peter Thiel telling their Founders you gotta you gotta get your money out that unto itself can create a run.

Yeah so Andrew I've spent the uh you know yesterday afternoon into the evening talking to Founders talking to VCS uh and the consensus is people are saying uh we don't know if Silicon Valley Bank is really under duress or or uh going uh to have issues but we don't want to wait around to find out if you're going to Panic it's best to panic.

Early you don't want to be last in line to try to get your money out and so there have been uh you know all portfolio company emails sent from the likes of Founders funds uh and other prominent VCS who are saying you know if if uh if you've got more than 250k it's best to move it around uh and I spoke to one founder who who did so and said you.

Know it took about five clicks so it wasn't very hard to do on their online uh banking platform uh and was able to get their money out now there are other anecdotes of people who have had issues with wire transfers not going in quickly uh and not going in smoothly and so there could be some breaks in the system also some anecdote bits of people having.

Trouble logging on uh in the afternoon so that could indicate there's a lot of traffic uh on the Silicon Valley website How concerned should people be not just though about Silicon Valley Bank itself but whether we think there's a contagion whether we think this is going to spread so so this the takeaway I've had from the people I talked to is this is like.

2008 but only for crypto and startups and so the hope is that it stays there um I think the concern in terms of knock-on effect is you know I talked to a Founder last night who said I don't have any money at SVP um I I was told to to pull it out if I did but I don't have any exposure there however I'm trying to extend uh a debt.

Refinancing and Silicon Valley Bank and others were specialists in this and they're not doing it anymore and it's risk off and so I'm not going to be able to make payroll potentially in the next coming weeks if I can't do this refinancing term sheets for startups are going to get pulled uh in this person's estimation so the knock-on effect is you.

Could have and we've speculated for a while that there needs to be an event in which all these unprofitable startups that exist uh that were created in the zero money uh you know interest uh era needs actually you know be there needs to be a reckoning there and it's possible that this is a thing that incites that it is not clear I want to.

Be you know careful to say that but in terms of knock-on effects I would look there first hey Hugh look I think this is a bigger issue you start looking through what what happens and Jim Cramer talked about this yesterday when we spoke with him on our air he said there are cracks everywhere this is what happens when you have the FED raising.

Rates you have liquidity getting drawn in and it's probably not surprising that one of the places that this would be an issue would either be a crypto bank or a bank that specializes in in Tech startups that are having problems getting money elsewhere so they need their money back but I do think there's a bigger problem that this is.

Highlighting and if you look at any of the big Banks yesterday that were down 7.8 percent you're looking weekly to date numbers here Citigroup down eight percent for the week to date Bank of America down 11 percent Wells Fargo down by 13 JP Morgan was down significantly Schwab was down 11 or 12 yesterday and it it's because a lot of these Banks.

Hold something you know they it's an accounting rule that says these Banks can hold bonds and not mark them Mark to Market they can mark them hold to maturity which is fine if you plan on holding some of these bonds that you've been holding all along to maturity you can do that and those are your best plans that you're holding all these.

Bonds to maturity but if you have customers who want their money back you can't hold them to maturity you have to sell them and in some cases at a very big loss because bond prices have been collapsing this year as the FED has raised interest rates I think that's when you look at some of the bigger Banks what the concern is people are.

Just digging through and this may be a case of sell now ask questions later but people are digging through looking for these hold to maturity sort of situations where the accounting numbers are valuing the bonds at a much higher level than they'd be worth if you were forced to sell them today yeah Becky you're absolutely right so.

The issue with the potential unrealized losses on on bond portfolios uh Bond's obviously worth less as the FED has been aggressively hiking rates

Sharing is caring!

3 thoughts on “Silicon Valley Monetary institution meltdown: Contagion risk or contained?

  1. They have dilapidated bonds and since the curiosity charges has raised they are sitting a heap of losses and nothing can stop this besides maybe corruption the curiosity will withhold rising and no longer glide down except they manipulate it. Smells like 2008 to me.

Leave a Reply