SVB: Grew from the Business Start-Up Ecosystem

Posted on April 26, 2023 by Dr. Marcinko

By Staff Reporters

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DEFINITION: Startups are young companies or ventures that are founded to develop a unique or innovative product, service, or platform, and bring it to market. They are typically in the early stages of their development and face high uncertainty and failure rates. They are usually self-funded by the founders or seek external funding from investors or loans. They aim to grow large beyond the solo founder and disrupt existing industries or create new one.

CITE: https://www.r2library.com/Resource/Title/0826102549

SVB rooted in the startup ecosystem

SVB was relatively small—it had 40,000 customers compared to JPMorgan Chase’s 66 million—but it claimed to bank nearly half of all US tech and life sciences startups last year, including household names like Etsy, Roblox, and Roku. The cultural cachet of having a relationship with SVB as a venture-backed startup was like sporting a New Yorker tote at Whole Foods.

But the reason its loss will leave such a gaping hole in the startup community isn’t that it was cool to name-drop at a networking event. Because the bank was created in 1983 specifically to cater to venture-backed startups, it helped them in ways that most banks can’t—or won’t.

SVB chill loans: According to the MorningBrew, SVB would offer loans to startups more readily than large banks, basing the loans on a company’s ability to raise venture capital funds, not to turn a profit. SVB was also known for being flexible—even if startups breached their loan terms. “They were the easiest money for an unprofitable, early stage to mid-stage tech company,” Irving Investors founder Jeremy Abelson told The Information. And, even small startups received hand-holding services, such as guidance on how to set up their financial infrastructure. Its bankers personally called startups when they secured their first rounds of funding, according to The Information.

Startups now have to deal with big banks

Several founders who previously banked with SVB told Bloomberg that they’re moving their money to Chase and Bank of America, banks considered “too big to fail.”

Startups’ experience at big banks won’t be like their time at SVB. Not only is Jamie Dimon unlikely to call a startup to congratulate them on their Series A, but big banks are also expected to be more tight-fisted with their loans. The Office of the Comptroller of the Currency, a regulator that oversees large US banks, disapproves of loans to companies that are further out than one year from profitability, according to Crunchbase.

The loss of SVB is therefore expected to have a chilling effect on loans to venture-backed startups, aka “venture debt,” which SVB handed out more of than any other bank.

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What to Expect After the Silicon Valley Bank [SVB] Collapse

Posted on March 26, 2023 by Dr. Marcinko

By Vitaliy Katsenelson CFA

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Over the past decade, the Federal Reserve has manipulated asset prices by interfering with free markets by deciding what both short-term and long-term interest rates should be. This resulted in an increase in risk-taking behavior among investors.

CITE: https://www.r2library.com/Resource/Title/08

Risk became a four-letter word uttered only by curmudgeons; the only thing investors feared was being left out. The more risk you took, the more money you made – until you lost it all.

RISK: https://www.routledge.com/Risk-Management-Liability-Insurance-and-Asset-Protection-Strategies-for/Marcinko-Hetico/p/book/9781498725989

READ: Silicon Valley Bank’s Downfall: A Cautionary Tale of What’s to Come

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First Republic and Silicon Valley Banks are NOT Microsoft!

Posted on March 24, 2023 by Dr. Marcinko

By Staff Reporters

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Wall Street’s $30 billion infusion into First Republic Bank didn’t manage to calm investors’ jitters about how banks are holding up. The regional bank’s stock tanked again Friday, dragging most of the market down with it. Moody’s Investors Service downgraded its credit rating on First Republic Bank to junk, citing a “deterioration in the bank’s financial profile.” First Republic’s debt rating was cut to B2 from Baa1, Moody’s said. Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s debt earlier this week.

The downgrade reflects “the deterioration in the bank’s financial profile and the significant challenges First Republic Bank faces over the medium term in light of its increased reliance on short-term and higher cost wholesale funding due to deposit outflows,” Moody’s analysts said in a release.

And, SVB’s parent company filed for Chapter 11 bankruptcy yesterday, buying it time to pay off creditors and making it easier to sell off its assets (but the bank itself, currently in the hands of the FDIC, isn’t part of the filing). Meanwhile, President Biden called on Congress to make it easier to punish bank executives if their mismanagement causes a bank to collapse, including allowing regulators to claw back their pay.

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But Big Tech stocks got a boost from investors looking to park their cash in non-bank companies, pushing Microsoft to its best weeks in almost eight years.

CITE: https://www.r2library.com/Resource/Title/0826102549

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FOMC Hikes Interest Rates 0.25%

Posted on March 22, 2023 by Dr. Marcinko

BREAKING NEWS!

By Staff Reporters

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Dateline: WASHINGTON—The Federal Reserve raised its key short-term interest rate by a quarter percentage point today, pushing ahead with its aggressive campaign to tame inflation despite financial turmoil following Silicon Valley Bank’s collapse.

FOMC officials forecast another quarter point in rate increases this year to a peak range of 5% to 5.25%, in line with its December estimate and lower than the level markets anticipated before SVB’s meltdown.

In a statement after a two-day meeting, the Fed acknowledged recent strains in the nation’s banks and said they will soften the economy but added the financial system is stable.

CITE: https://www.r2library.com/Resource/Title/0826102549

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DAILY UPDATE: The Bitcoin Boost Up!

Posted on March 19, 2023 by Dr. Marcinko

By Staff Reporters

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Bitcoin prices climbed to as high as $27,293 last week, wrapping up the cryptocurrency’s best week since January 2021. And it has Silicon Valley Bank and friends to thank for it. Crypto diehards claim bitcoin’s gains are the result of people losing faith in traditional banking after SVB and Signature imploded (though it’s worth noting that Signature was a big player in the crypto world).

However, after the second-and third-biggest bank failures in history, economists started second-guessing whether the Fed would stick to the plan to hike interest rates again or change course to protect the rest of the very fragile banking industry. That could mean the crypto market, which slid into the dreaded Crypto Winter in the first half of last year because of macroeconomic factors like the Fed’s rate hikes, might finally be approaching spring.

So, according to MorningBrew, the Fed’s interest rate decision next week will likely serve as crypto’s redeux. And despite the banking industry hoping Jerome Powell pauses the interest rate hikes, February’s inflation numbers showed that the Fed may need to stick to its original plan to keep inflation in check.

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MARCH “IDES”: Banking, Markets and Labor

Posted on March 15, 2023 by Dr. Marcinko

IN BRIEF

By Staff Reporters

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The Ides of March (today) is infamous for being the date Julius Caesar was killed. But before that happened, it was mostly known as the deadline by which the ancient Romans had to settle their debts.

Speaking of debts?

Markets: Banking debt crisis averted? While many questions remain over the collapse of Silicon Valley Bank, stocks boomed yesterday in a sign Wall Street has moved past the “panic” stage of this drama. Regional banks like First Republic, whose shares got trounced on Monday, rebounded as the threat of an SVB-like bank run dissipated.

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Finally, while the US labor market remains strong, layoffs have spiked in 2023. Companies announced 180,713 job cuts in January and February—the most to start any year since 2009, according to Challenger, Gray & Christmas. About one-third of the layoffs took place at tech companies, like Meta which just announced another 10,000 more..

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BREAKING NEWS: Oil, Distressed Banks and Banking

Posted on March 13, 2023 by Dr. Marcinko

By Staff Reporters

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Saudi Aramco made what is s probably the “highest net income ever recorded in the corporate world,” Saudi Aramco’s CEO Amin Nasser just said. The state-owned oil giant brought in an astonishing $161.1 billion in net income in 2022, up 46.5% from the previous year. Rising oil prices lifted all energy companies last year, but Aramco raked in almost triple ExxonMobil’s 2022 profits (record for any Western oil company).

So, after getting mixed signals about the economy from Friday’s jobs report, the Fed will take a fine-toothed comb to the consumer price index, which drops tomorrow.

CITE: https://www.r2library.com/Resource/Title/082610254

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Banks: At the end of an extremely stressful weekend, depositors of collapsed Silicon Valley Bank were told they would be made whole. Yesterday evening, the US government informed anxious SVB depositors that they’d have access to all the money they stashed with the lender today, even if the amount exceeded the $250,000 limit insured by the FDIC. In addition to backstopping depositors, the Fed is offering additional funding to some banks to limit the contagion from spreading across the banking sector.

And, according to MorningBrew, the Fed’s aggressive action shows how the implosion of Silicon Valley Bank on Friday could have quickly turned into a full-blown banking crisis when markets open this morning.

  • Banking is a confidence game, and if people and businesses felt their uninsured deposits were at risk, they could start pulling money from other banks in a catastrophic bank run.
  • The government had a hard deadline of 9:30am ET this morning to restore confidence in the banking system, and it beat it.
  • However, in their announcement, regulators also noted the closure of a second bank, New York-based Signature Bank, over “systemic risk.” All of Signature’s depositors will be made whole, they said.

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ALERT: HSBC Holdings PLC just said that it purchased Silicon Valley Bank UK Ltd., the U.K. arm of the collapsed Silicon Valley Bank, for 1 pound ($1.20). HSBC said the acquisition will help strengthen its franchise in the U.K. As of March 10th, SVBUK had loans of around GBP5.5 billion and deposits of around GBP6.7 billion, while tangible equity is expected to be around GBP1.4 billion. The acquisition was completed immediately.

The Bank of England said it took the decision to sell SVBUK to stabilize the business, ensure continuity of banking services, minimize disruption to the country’s technology sector and support confidence in the financial system.

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