“I was a colossal failure in asset-liability risk management,” Mark T. Williams, a former bank examiner for the Federal Reserve, told me.
Williams was referring to the actions that led to the seizure of Silicon Valley Bank by federal regulators on Monday after the bank run. It is considered the biggest institutional failure since the financial crisis of 2008. SVB is a major lender to the technology and venture capital sectors. But the bank has not had a chief risk officer for eight months, fortune reported.
SVB’s parent company, SVB Financial Group, announced on March 8 a big bet – the sale of $21 billion in bonds, resulting in an after-tax loss of $1.8 billion for the quarter, fortune reported. Many of these bonds yield an average of 1.79%, lower than the current 10-year Treasury yield of 3.9%. SVB also announced that it is selling shares worth $2.25 billion in an effort to shore up its finances. But as my colleagues Anne Sraders, Jessica Matthews, and Kylie Robison write, this news is causing panic among investors. On Thursday, investors and depositors tried to withdraw $42 billion from SVB.
Actions from the CEO and CFO
“Customer loss of trust was obviously a big trigger in SVB’s collapse,” says Thomas Smale, CEO of FE International, a mid-market tech-focused M&A company. Concerned clients have been calling rival banks wanting to transfer large balances that exceed the FDIC’s insurance coverage, Smale said. In addition, there are some venture capital investors who advise startups to withdraw money from the bank to avoid losses if the bank fails, he said.
And the actions of SVB Financial Group CEO Greg Becker added fuel to the fire. “He sold a significant amount of personal stock last week ($3.6M on February 27),” Smale said. “So, I don’t think this is a good optic for investors and it may not help the speed of the situation in general. Actions often speak louder than words in this situation.
Meanwhile, also before the bank’s collapse, on March 1, SVB Financial Group CFO Dan Beck reported selling 2,000 shares of SVIB at an average price of $287.59, for a total of more than $575,000. Beck joined the bank in June 2017 with an annual base salary of $525,000. He is responsible for all financial, treasury, and accounting functions and also serves on the executive committee of SVB. Prior to SVB, Beck served as CFO and treasurer at Bancwest Corp. He also held financial positions at Wells Fargo and Freddie Mac.
“To avoid a crisis of confidence, SVB’s CEO and CFO must rely more on the old-fashioned banking approach to diversify credit and deposit customers,” said Williams, a master’s lecturer in the finance department at Boston University’s Questrom School of Business. . “Venture capital is a very risky business. So the bank not only exposes the asset side of the balance sheet but also the liability side.
“The CFO and, I would argue, the board failed to adequately protect shareholder value,” Williams said. “The risk management committee appointed by the board, which cooperates with the CFO, should carry out a sufficient scenario analysis to check the risk of deposit withdrawal. This, in fact, the bank collapsed.
Go forward
The US Treasury, the Federal Reserve, and the FDIC issued a joint statement on Sunday that SVB depositors will be able to access their money, and that no losses related to SVB’s resolution will be borne by taxpayers. The top priority of the Treasury and the FDIC is to find a buyer for the bank. HSBC announced today to buy SVB’s UK subsidiary.
In the US, SVB banks nearly half of the 2022 venture-backed technology and life sciences companies. And by 2022, 44% of tech and healthcare IPOs will be US-backed, according to the firm. “Unlike typical retail bank customers, 95% of SVB’s depositors were not FDIC-insured,” Williams said.
Will the collapse of SVB affect public companies? “In the near term, there is minimal exposure from a public company perspective around this SVB implosion, and outside of Roku and a few other people in the tech world with money in the bank, we’re seeing a negligible impact on public cash balances. tech players, ” Wedbush analysts wrote in a note on Sunday. “However, while we’ve heard from public CFOs since Friday night in places that should ease the fears of early tech investors, the bigger and more troubling story is how this will change the startup and VC community going forward.”
You can read it fortune’s regular coverage of the fall of SVB here.
Sheryl Estrada
sheryl.estrada@fortune.com
big problem
Prophix, a global financial performance platform for middle market businesses, released its 2023 Financial Leaders Survey. The top five external pressures financial leaders face include inflation, rising energy prices, recession fears, talent issues, and rising interest rates. When asked what their team’s main focus is this year, 43% of finance leaders said they are looking for innovative ways to drive current processes. Meanwhile, 31% say the finance department is a strategic contributor to the business. And 25% say it prepares their organization for a challenging future. The findings are based on a global survey of more than 700 global senior-level finance professionals across industries, including business/professional services, education, health care/senior living, construction, manufacturing, and real estate.
Deeper
In the Wharton business journal’s tool for leaders, “Choosing a New Board Leader: Eight Questions,” Wharton’s Mike Useem and his colleagues suggest questions that can guide your search for a new board leader. “Our experience (the four of us have interacted with more than five times the governing boards of the Fortune 1000) shows that many boards may not be clear enough about their roles and responsibilities,” the authors wrote.
Leader board
Matt OsbergCFO at Helen of Troy Limited (Nasdaq: HELE), a global consumer products company, announced his resignation, effective April 27. Osberg was named EVP and CFO at Apogee Enterprises, Inc. (Nasdaq: APOG), effective April 28 Brian Brian Grass, retired Helen of Troy CFO, is expected to join the company as SVP, assistant CFO on March 21, and will serve as interim CFO effective April 28. Helen of Troy will begin a national search immediately for the new CFO.
Carlos Smith named CFO at Paragon Space Development Corporation. Smith has more than 30 years of financial leadership experience. Prior to joining Paragon, Smith’s career included serving as CFO at IAI North America (Stark) Aerospace Division, SVP and CFO at Leonardo DRS Airborne & Intelligence Systems, and most recently as CFO of Dawson Operating Companies. Smith also spent more than a decade with L-3 Technologies Vertex. Smith also served in the US Army Reserve as an internal auditor.
Hear
“The Fed should immediately buy all the securities/loans the bank has at near par, which should be enough to cover most of the deposits. Any losses paid for ventures and new loans from the new bank or whoever buys them. The Fed knows this is a risk. They have to own it. “
—Mark Cuban, tech billionaire and owner of the NBA’s Dallas Mavericks, tweeted on March 10 he wanted the Federal Reserve to buy Silicon Valley Bank debt.