Long reads

Which banks are at risk after the SVB collapse?

Scott Hamilton

Scott Hamilton

Contributing Editor, Finextra Research

When Silicon Valley Bank (SVB) failed last week, a 40-year legacy born in the innovation and optimism of its namesake Northern California birthplace died with it. Now that the nearly $200 Billion deposit institution – which according to many analysts may have banked more than 50% of all tech companies at some point in their existence – is gone, what’s next?

Are there other potential ‘dominoes’ that might fall among surviving American financial institutions, especially the regional, smaller banking firms which have like SVB thrived while providing accounts and lending to emerging companies as the tech industry surged? Some of these banks now struggle along with their customers as lower earnings, layoffs, and losses have become the recent norm for many in the once-thriving field.

A survey of news and opinion on the topic of recent events and potential outcomes of the SVB shutdown and to a lesser extent, the failure of the smaller Signature Bank of New York ($89 Billion in deposits) this weekend, shows widely varying views among industry talking heads. Some assert that most of the storm of the crisis has passed, while many agree that the failure exposed flaws in the system since SVB was technically sound even after six quarters of losses. All agreed that SVB’s failure was caused by decreasing customer deposits among their key client base and rapidly increased withdrawals at the same time their backing investments for those deposits – traditionally very safe government securities – had to be liquidated at a loss prior to maturity to continue coverage.

Most feel that the Federal Deposit Insurance Corporation’s (FDIC) announced policy change to backstop all deposits, and not just those below the standard $250k per individual relationship guarantee, should do much to stanch the flow of deposits flowing from smaller, regional and less diversified banks to larger ones in the U.S. marketplace. But for some of these more tech and startup- exposed institutions, there are no guarantees that all customers will agree. And public opinion is still being gauged on the subject of just how much US regulators should do to protect the deposits and bottom lines of riskier institutions like SVB and others focused on supporting the tech and other emerging industry sectors.

Questions are swirling around the topic of ‘how much is too much?’ when it comes to protecting those, including wealthy venture capitalists, who go beyond typical risk parameters. Some of these VCs have used banks like SVB and others in the startup sector to help support and provide capital to younger, often unprofitable (yet previously growing) companies, and many of them led the charge away from SVB and other banks beginning late last week.

Amid the SVB carnage, shares in several regional institutions were hammered over the weekend and in the early hours of US markets on Monday. Three institutions with heavy concentrations in technology and venture capital experienced major ‘market hangovers’ from weekend events.

  • $41 Billion asset Pacific Western Bancorp saw its stock price drop more than 50% from its previous close on Friday, March 10. Soon after Monday’s NASDAQ market opening it was hovering under $6.00/share. As recently as February 7, PACW stock was at nearly $29 per share and it closed March 8 at $26.68, meaning in the past five days it has lost more than 75% of its value.
  • First Republic Bank (FRC), had also lost the majority of its market value as of Monday’s mid-morning hours. With a deposit base similar in size, if not composition, to SVB’s, its price hovered under $20/share, a fraction of its $147 purchase price only five weeks ago. Mid-morning Monday, trading was temporarily paused on its shares.

    The company’s management and several industry watchers did emphasise that it was “no SVB” in terms of its customer base. One analyst, Erika Najarian of UBS, said that according to First Republic CEO, Mike Roffler, “venture-capital and private-equity deposits were just 8% of the bank’s total”, vs. around 52% for Silicon Valley Bank’s balance sheet.
  • Western Alliance Bancorporation, a $61 Billion-deposit Phoenix, Arizona-headquartered holding company, focuses through its seven member banks and mortgage unit on entrepreneurial individuals and companies. Because of its exposure to similar customers as SVB, First Republic, and Pacific Western, its also getting close scrutiny right now, with its stock price down 84% from its March 8 close just above $71 per share, with trading briefly halted in early Monday trading.

    Ironically, the holding company’s website touts its strength vs. competitors: “We rank high on Forbes’ ‘America’s Best Banks’ list year after year because our regional brands and national banking businesses put customers first.”

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