SUBSCRIBERS EXCLUSIVE
The operation adds suspicions about the evolution of the Silicon Valley Bank closed this Friday by the US government and protagonist of the second largest banking crisis in the country since 2008
The financial earthquake that triggered the bankruptcy of the technology bank, Silicon Valley Bank (SVB), this Friday, added complicated news. It turned out that Greg Becker, the head of the entity, was selling up to 3.6 million dollars of shares two weeks before bankruptcy.
The United States government intervened in the bank to protect customer deposits and try to avoid an unpredictable domino effect. The SVB is number 16 among the largest banks in the United States and its bankruptcy It is the second in the country’s banking history this century after the 2008 crisis.
Becker’s moves add another element to SVB’s scrutiny. The financiers sold 12,451 shares on February 27, the first time he had done so in more than a year, according to forms submitted to regulatory authorities seen by Bloomberg.
The plan to sell the shares had been delivered just over a month earlier, on January 26. Amid growing suspicions, both Becker and SVB they did not answer up to now to press inquiries as to whether this sale of shares simply responded to a temporary coincidence.
The entity, founded 40 years ago and recognized for financing Silicon Valley technology start-ups to which large banks are often reluctant to lend money, began to suffer a run last Thursday.
It happened after a letter from Becker to the shareholders of SVB became known in which he indicated that the bank had a loss of US$1.8 billion in the first quarter and that, faced with this, it was planning an accelerated placement of shares of US$ 1,750 million to clean up its capital position.
The lethal jump in rates
SVB was particularly affected by the sudden change in US monetary conditions: in 2021 companies backed by venture capital firms managed to raise a record US$330 billion in funding, in a context of ultra-low rates by the Fed.
The bank took billions of dollars in deposits and, confident that rates would not change, he put the money into long-term Treasury bonds. However, with record inflation in 40 years, the Fed ordered one of the fastest monetary adjustments in its history, and the bonds lost much of their value.
Another effect of the rate hike was the impact on the technology sector, since these companies -especially in their early stages of development- are the ones that more need cheap financing to solve a growth that is not profitable in its first years. Without financing, they need to withdraw their savings from banks.
In a domino effect, the rate hike caused SVB’s deposits to fall and the bank had to sell its devalued bonds at a loss. After Becker’s letter became known, a bank run began in which investors and savers tried to extract US$42 billion in less than 24 hours.
The withdrawal was prompted by the very own venture capital firms that advised the startups withdraw funds from the bank faced with the risk of insolvency, despite Becker’s pleas for calm to the bank’s large clients. At the time of its closure by the federal authorities on Friday, the bank registered a negative balance of US$ 958 million.
According to the California Department of Financial Protection and Innovation (DFPI) ?the authority that ordered its closure- the run ?caused the bank to be unable to pay its obligations.?
The fall of SVB is the biggest failure in the US financial system since the Lehman Brothers crisis of 2008. It had $209 billion in total assets at the end of 2022.
now the market fears of a contagion effect in other banking entities: in particular, the sight is set on the medium and small banks that were left out of the FED’s radar and that took riskier positions compared to the great players.
In 2018, the Trump administration reversed some of the heavy regulations imposed by the 2008 crisis on these small banks, raising the requirement to qualify as a “systematically important” bank from $50 billion to $250 billion. for example, requires annual financial stress tests.
Meanwhile, among SVB’s client startups there is concern about not being able to pay their salaries from next week. It is that the Federal Deposit Insurance Corporation (FDIC), the federal authority that will be the depository of the bank’s funds, promised access on Monday to insured deposits, but this protection only covers those that are less than US$ 250,000, a minority percentage among bank customers.
NEW YORK. BLOOMBERG AND CLARIN