Billionaire Bill Ackman has called on the United States government to “guarantee” all deposits held by Silicon Valley Bank (SVB) within the next “48 hours”. Otherwise, it risks “ruining” many financial institutions.
He further stated that the top management of SVB made a “fundamental mistake” and should be fired.
Bill Ackman warns of the consequences of the collapse of SVB
In a March 11 tweet, Bill Ackman, CEO of Pershing Square, which manages hedge funds, said that unless the government “guarantees all” of SVB’s deposits before “Monday’s opening,” essentially all uninsured deposits” will be pulled from all banks , except for “systemically important banks (SIBs)”.
Ackman suggested that this would be the result of “the world” realizing what an uninsured deposit is – “an unsecured illiquid claim on a failed bank”.
He warned that these withdrawals would “drain liquidity” from community, regional and other banks and “begin the destruction” of these key institutions. All this is to happen unless the US government protects “all depositors”.
According to Ackam, the only other eventuality that this can be prevented is “a very unlikely possibility”. This consists in the fact that large financial institutions such as JPMorgan, Citibank or Bank of America will acquire SVB before the markets open on Monday.
Ackman thinks it was all “preventable.” It was enough for the US government to “step in on Friday” and guarantee SVB’s deposits. He added that the “franchise value” of the long-standing bank could be secured and “transferred” to a new owner in exchange for a “capital injection”.
He has critical words especially for the management of the company. The top management of SVB “made a fundamental mistake” and should be dismissed. He noted that:
They invested short-term deposits in long-term assets with a fixed interest rate. Then short-term rates rose and a bank run ensued. Top management screwed up and should lose their jobs.
What are the scenarios for further development?
After performing a back check of SVB’s balance sheet, Ackman believes that even in the event of a liquidation, depositors should ultimately get back approximately 98% of their deposits. However, as he rightly points out, the word eventually is too long when you’re due for payments next week.
Shortly after, he reiterated on Twitter that the Federal Deposit Insurance Corporation (FDIC) should guarantee all deposits at SVB Bank by Sunday evening. Further planned steps for this need to be published.
Conclusion
Ackman’s criticism comes after Bob Elliot, CEO of investment firm Unlimited, said the Federal Reserve and FDIC’s decision on the future of SVB could affect regional banks across the United States. Trillions of dollars are at risk.
Elliot said nearly a third of deposits in the United States are held in small banks. However, it is important to note that only 50% of these deposits are insured.
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