1.800
million dollars totaled the bank’s losses in the first quarter of this year.
40.000
billion dollars was the valuation of Silicon Valley Bank last year.
After a turbulent week, Silicon Valley Bank (SVB), known for financing startups, finally collapsed after US banking regulators decided to close the entity and appointed the Federal Deposit Insurance Corporation (FDIC) as its controller. This, given the “inadequate liquidity and insolvency” that the bank was presenting.
And it is that in an attempt to raise capital and compensate for the flight of companies, last Wednesday SVB sold a bond portfolio of US$21,000 million and announced another operation of around US$2,250 million in shares. This, with the purpose of filling its financing gap; however, the Californian bank ended up losing close to US$1.8 billion.
The foregoing occurred in a scenario marked by the increase in interest rates by the Federal Reserve (FED) and the exhaustion of venture capital financing, for which reason SVB found that deposits were falling faster than they had expected. provided.
“What happened with Silicon is a secondary effect of the Federal Reserve rate increase, additionally there was a problem with the bank’s cash flow management, which forced them to liquidate positions in bonds, which, due to the high rates, have had a very complex year. All of this led to their having to liquidate positions at a loss, which also ended up affecting their balance sheet. In addition, the entity did not have many of the deposits covered in insurance, so it was a mixture of various factors,” Gregorio Gandini, founder of Gandini Analysis and specialist in capital markets, explained to this newspaper.
So far, what is known is that the FDIC told insured depositors that they will have access to their funds no later than next Monday morning, while uninsured customers will get a certificate of receivership for the remaining amount. of your deposits. The latter may mean that the funds will be assumed by another bank in stable condition, or that the FDIC will pay depositors up to the amount they have insured.
It should be remembered that SVB is the second bank in the United States to close this week after Silvergate Capital announced that it would voluntarily liquidate its bank.
Contagion risk?
According to the Efe agency, Wall Street closed this week with losses of more than 4% in its main indicators, dragged down by pessimism regarding the rise in interest rates in the US and the unexpected collapse of Silicon Valley Bank.
“Before the news about SVB was released, the markets were already betting on sales in the expectation that the Fed will tighten its monetary policy soon given the resilience of the economy and the solidity of the labor market,” reported Efe.
And this situation generated even more nervousness after the president of the Fed, Jerome Powell, affirmed that the entity will accelerate the rises in interest rates if justified. And although Powell had to clarify the next day that there is still no firm decision on the matter, the fall of SVB raised questions about the health of the US financial sector and the monetary policy of the central bank.
In this sense, for Gandini, all this generates some impacts on the world stock markets, increasing nervousness due to its solidity and the fear that it could have a domino effect or “contagion” with other banks.
“That’s where all the Fed restraint is supposed to start to handle the issue, because questions start to be raised as to whether rates are already high enough,” the analyst said.
Las startups
Although this is considered the worst crisis that SVB has experienced, it has not been the only one. In 2001, the shares lost 50% of their value when the technology bubble burst in the US. However, SVB was able to come out on top, becoming the main bank specializing in loans to entrepreneurs and small technology companies.
But now, with this storm that it is going through, one of the main concerns is precisely what will happen to the startups. In fact, Garry Tan, head of YCombinator, Silicon Valley’s top tech incubator, has already shown how uncertain he is.
“The failure of Silicon Valley Bank could wipe out an entire generation of startups. If there is no further action, this will become a contagion that will spread to other startups and other banks. Depositors must be complete, ”Tan expressed through her Twitter account.
Another example is that of Capsule, a startup using artificial intelligence in the software video editing software to improve the speed and efficiency of post-production edits.
Champ Bennett, its co-founder and CEO, said via Twitter that a month ago his small team was celebrating the close of a $5 million fundraiser, which would allow them to stake on its future. But, today they can no longer access those funds due to the closure of SVB.
“I have been in contact with hundreds of founders who employ thousands of the hardworking and talented people in this country (…) They have families to feed, rents and mortgages to pay. Most of them accept below market wages. We look forward to a positive outcome with SVB and we could use your support,” Champ said.
So this would be the biggest bank failure in the US since the 2008 crisis, so its collapse has VC firms and small start-ups that are just trying to break through in the sector trembling and uncertain. technological.
