SVB collapse will have ‘major’ impact on tech industry

The collapse of Silicon Valley Bank today sparked fears of contagion in the tech industry with mass layoffs predicted by experts if start-ups fail to make payroll.

The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today after depositors, mostly tech workers and start-ups, triggered a bank run following the shocking announcement of a loss. of $1.8 billion.

With around $209 billion in assets, SVB is the second largest bank failure in US history after the collapse of Washington Mutual in 2008. The collapse could decimate the tech sector as many startups use SVB as your sole account and creditor.

Investors are only insured up to $250,000, and like tech companies, many Silicon Valley workers use the bank for their personal cash flow and mortgages.

New York businessman Brad Hargreaves warned that the failure of SVB would have a “massive impact on the tech ecosystem.”

‘SVB was not just a dominant technology player, but highly integrated in some non-traditional ways. We will see some things in the next days or weeks, ”he tweeted.

‘One, SVB became incredibly integrated into the lives of many founders. Not only the bank and lender of his start-up, but also provided personal mortgages and other financial services. Quite a hassle for the FDIC (or eventual buyer) to relax.

‘Two, the ‘uninsured’ balances in SVB, those above $250K, are in jeopardy. The FDIC plans to pay them ‘while selling SVB’s assets’. Many new companies banked exclusively with SVB as *this was a debt covenant*!’

Hargreaves said many chief executives faced a difficult decision yesterday, either withdraw their cash and default on their debt or risk losing everything if the bank fails.

‘Many chose to stand their ground as the complete failure of SVB seemed far-fetched. Now they may not be able to make payroll next week,’ he said. ‘Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to hiring workers they may not be able to pay. Expect mass layoffs later today, no later than Monday.

SVB’s share price plunged 66 percent premarket before trading was suspended. Police were called to a branch in Manhattan after dozens of desperate depositors turned up to try to withdraw their funds.

The FDIC said Friday that customers would have full access to their insured deposits no later than Monday morning.

The federal agency said it will pay uninsured depositors an anticipated dividend within the next week. As the FDIC sells off the bank’s assets, future dividend payments may be made for the uninsured funds.

However, the FDIC said that, at the time of the bank’s closure, the amount of deposits that exceeded insurance limits had not been determined.

“This is going to be tough for a lot of founders and startups, a lesson to be learned,” said Adrian Mendoza, founder and general partner at Mendoza Ventures in Boston.

He told The Boston Globe: ‘I get texts and emails from everywhere. They are bombing us.

The panic sparked fears that the Silicon Valley lender could be the canary in the banking coal mine.

Michael Burry, the investor featured in 2015’s The Big Short, warned: “We may find our Enron today.”

SVB’s troubles followed the sudden closure of another bank, Silvergate Capital.

At Silvergate, the problem was a run on deposits that began last year, when its predominantly crypto clients withdrew funds amid the FTX exchange crash.

SVB is the banking partner for half of America’s corporate-backed life sciences and technology companies, and is a major creditor of the $10 trillion private equity industry.

“SVB’s 40 years of business relationships supporting Silicon Valley evaporated in 14 hours,” said a top executive of a multi-billion dollar venture fund.

Before the SVB vulnerability became public, US bank shares had already plunged after retail bank KeyCorp warned it faced mounting pressure to pay savers.

After a 6.6 percent drop on Thursday, the S&P 500 bank index stabilized from an early slide on Friday, rising briefly, while the KBW regional bank index fell 3.5 percent. Europe’s STOXX banking index fell nearly 3.8 percent, marking its biggest one-day percentage drop since June 2022.

Christopher Whaler, president of Whalen Global Advisors in New York, said: “I think the Fed grossly miscalculated the impact of raising interest rates and so these are self-inflicted wounds and if we see more banks fail then the Fed is facing a very difficult situation that may force them to lower interest rates.’

“There could be a bloodbath next week as the banks are in trouble, the short sellers are out there and they are going to attack all the banks, especially the smaller ones.”

I think Silvergate started it. That was the first pebble to fall from the mountain and now we have a rock and more are likely to follow.

“Investors are concerned about where they should put their money and it is not good for smaller banks when customers ask these questions. It has a domino effect and other smaller banks may suffer.’

Ashley Tyrner, chief executive of Boston wellness firm FarmboxRx, said she had at least $10 million on deposit with SVB and has been desperately calling her banker. She said it had been “the worst 18 hours of my life.”

“It was pure and utter panic,” he said of his mindset after hearing the news.

Tyrner, who runs a 63-employee company, told The New York Post that “panic broke out” Thursday morning when top executives called her to say they urgently needed her to approve a wire transfer. “When I went to log in to approve the transfer, the system completely crashed,” Tyrner said. She wouldn’t let anyone in.

Tyrner said he had repeatedly tried to call customer service and his personal banker at SVB. “He wasn’t answering the phone,” Tyrner told the Post. ‘He texted us that he’s so sorry. They are trying to fix the problem so we can log into the account.

But when she tried to contact him later when the problem was still not fixed, he stopped responding. “He won’t answer to anyone at my company,” she said. Not even a text. We have no idea what’s going on.