‘Sweeping’ threat or ‘minor bump’? Philly investors weigh in on Silicon Valley Bank wreck
Bank-watchers, relieved by the bailout, say investors are digging in for tougher times
Bank stocks are down 20% since last week, as the Federal Reserve arranged a rescue of Silicon Valley Bank over the weekend.
Regional lenders like WSFS and M&T were hardest hit. Investors worry they will have a tough time coping with weaker commercial real estate values, as interest costs rise more, and offices stay vacant.
The Inquirer talked to people, who have worked with banks and start-up companies, about the economic impact of Silicon Valley Bank, its collapse, and the Fed’s reaction. Their answers have been edited for clarity and length.
‘A tough weekend’
Mike DiPiano, managing partner and co-founder, NewSpring Capital, a $3 billion private investment firm in Radnor
We had nine companies that we support (out of more than 100) who had accounts with Silicon Valley Bank. The CEOs were calling us: “What should we do?”
Mostly they had other accounts they could transfer funds to, but with two we had a tough weekend figuring things out.
When the email came through (that the government would oblige solvent banks to back Silicon Valley’s uninsured deposits), everyone got a cocktail.
Silicon Valley Bank was unique, with the way they offered deposit services, lines of credit, lending relationships, to tech and biotech companies.
But (in recent times) other banks have been offering those services — groups at Comerica, Bridge Bank, PacWest, all now have accounts with our companies. In the past week we have been inundated with calls from other banks, starting with the Philadelphia office of Bank of America.
And since this started, everybody in our industry has been more focused on making sure companies don’t rely on just one account — and on getting the burn rates (losses) under control.
‘Where were the regulators?’
Charles Coltman, former president, CoreStates Bank
Where were the regulators? Allowing their management to take excessive risk is a part of [every bank in trouble]. But what is even more significant is the increasing dependence on ratios to judge the risk and adequacy of capital, instead of assigning skilled examiners to evaluate individual credits, like regulators used to do ...
One part of the Fed rapidly raises rates, causing a regulatory disaster for the other end of the Fed. How could the junior regulators raise the alarm sufficiently to [change] the monetary policy side of the Fed, which really runs the show?
Back during debate on the [2010] banking reform bill, Sen. Christopher Dodd (D-Conn.) wanted to take regulation away from the Federal Reserve, but that was rejected. I think what just happened should revive that proposal.
A ‘minor bump’?
Howard Butcher IV, energy investor
The SVB mess is merely part of an overdue shakeout of the high tech hysteria. First, the foolishly overpriced “oh promise me” stocks with little or no earnings declined to levels more nearly reflective of actual values. The cyber-currency mania has at least partially faded. It should only follow as a matter of course repeating earlier market cycles.
In the overall scheme of things, this will likely be seen as a relatively minor bump in the road. The government is helping prevent widespread panic by its current moves. If successful, I suspect that most of our lives will be affected modestly, if at all, by this cleansing process.
‘Years to sort through’
Michael Bright, CEO, Structured Finance Association, a bond-market trade group
The policy debate over the collapse of Silicon Valley [Bank] is just beginning. Even if this weekend’s actions nip the current crisis in the bud — which is not likely to be the case — the ramifications for regulation and inflation-fighting will be sweeping and take years to sort through.
Real estate woes, too
Matt Topley, president, Lansing Street Advisors
Silicon Valley Bank grew deposits from venture capital and tech start-ups too fast; they couldn’t lend out that deposit money fast enough, so they parked it in (long) U.S. Treasuries; which they didn’t mark-to-market (but hid losses as interest rates rose) on their books. So when venture capital and tech imploded, Silicon Valley saw deposit withdrawals. They had to sell their Treasuries, at a loss.
The good news: There are no new, opaque, Wall Street-created financial derivative products, like we had (at the last crash) in 2008 — at least not yet.
The real question is: how does this sync up with the huge commercial real estate debt held by regional banks, in a slowing economy? That is yet to be determined.
Some of these banks are already trading at less than book value. The market prices things so fast now, you can barely react.
‘Pretty unique’
John Sedunov, professor of finance, Villanova University
Silicon Valley Bank was pretty unique. In the pandemic there was a massive run-up of deposits as people and companies put more money in the bank.
But in their case, their deposit base was pretty devoid of retail deposits. And they didn’t manage their influx of deposits in the best way. They bought really long-duration bonds, and didn’t hedge their risk. Other institutions will look at that and be more aware.
Borrowers are probably going to face a period of tightening. It will be more difficult for [start-ups] to find funding. When they do they will draw their cash down [carefully].
And we could see more businesses taking their uninsured deposits from small and regional banks and giving them to JPMorgan, thinking they are safer with a really big bank.
From the real estate perspective, as people continue to work from home, there are definitely more concerns about commercial real estate mortages, how they are going to get paid, whether valuations (will drop).
As to residential mortgages, we haven’t seen gigantic price declines yet. It seems we should, but there may be a lack of houses to sell (and that keeps prices up.) There are probably fewer homes that were purchased with less than 20% down payments, than in the late 2000s, so there should be less of a problem with the quality of mortgage loans.
Bailouts for some, not all
Robert Baer Cohen, lawyer
The government’s decision to immediately cover all the depositor’s accounts, with no limit, in the cases of SVB and Signature Bank, shows an unfair double standard.
On Oct. 26, 2012, the Department of Banking and Securities closed Nova Bank, headquartered in Berwyn. I was caught with a deposit $4,416 over the $250,000.00 limit.
In the 10 years since that time, the FDIC has made distributions totaling 76.8% of the loss.
It seems pretty obvious now that I will never recover the full amount.