What the bank collapse could mean for founders

by time news

Nfter the collapse of the Silicon Valley Bank (SVB), the question of the consequences for the financial center Frankfurt arises. For the past five years, the institute, which is headquartered in California, has also had a seat in Frankfurt. The German headquarters are on Guiollettstrasse in the Westend, from where the company operates lending business, but unlike its American parent, no deposit business. On Monday, the banking supervisory authority Bafin announced that the bank’s German subsidiary had “no systemic relevance” and that the company’s plight “did not pose a threat to financial stability”.

Daniel Schleidt

Coordinator of the economics department in the Rhein-Main-Zeitung.

Nevertheless, the supervisory authority ordered a moratorium on Silicon Valley Bank Germany on Monday, thereby closing the bank for customer traffic in order to secure the assets in an orderly process, as Bafin announced. Accordingly, the company can no longer grant any more loans, but the installments of the borrowers must continue to be serviced. The company’s customers in Germany include the meal kit supplier Hellofresh and the air taxi manufacturer Lilium.

Risks for start-up loans

Oliver Geiseler, banking expert at the Frankfurt management consultancy Capco, warns of the consequences for the start-up scene, including in Germany. After all, he doesn’t expect the big banks to simply fill the growth financing gap left by the failure of Silicon Valley Bank. The SVB is “a very unique bank” whose focus on growing tech companies can be highly profitable, “but also has a high risk”. The risks for start-up loans could now be reassessed. “The good start-ups will stay, but the shaky ones won’t,” says Geiseler.

However, Sebastian Schäfer, head of the Tech-Quartier start-up center in Frankfurt, does not fear any direct consequences of the bankruptcy of the SVB for start-ups in the region. The bank’s business model primarily provides venture debt as a form of financing, i.e. growth financing, which uses growth fantasies instead of existing revenue figures to make decisions about an investment. There are far fewer such start-ups in the region than in Berlin, for example, “that is less relevant for the Frankfurt ecosystem”.

Most recently, according to Bafin, the total assets of the German subsidiary amounted to 789.2 million euros, which is about the size of a smaller Volksbank. Overall, the company, which sees itself primarily as the house bank for the technology industry and for up-and-coming start-ups in the growth phase, has total assets of around 200 billion euros. For comparison: the Hessische Landesbank Helaba recently reported total assets of 213 billion euros.

Like after the collapse of Lehman Brothers, the consequences are unlikely

Within a few days, the Silicon Valley Bank had lost the confidence of investors and customers last Friday, the US Federal Deposit Insurance Corporation took control and closed the bank.

The bankruptcy has thrown the financial industry into turmoil, after all it brings back memories of the financial crisis around 15 years ago. However, experts consider consequences similar to those after the collapse of the investment bank Lehman Brothers to be unlikely. “Politicians, central banks and financial market participants have learned,” wrote Commerzbank expert Ulrich Leuchtmann in a market commentary. Above all, there are now means to contain such a crisis, which did not exist in 2008 – which is why the risk of infection is lower than then.

The American government announced at the weekend that all deposits at the bank would be protected. But Jochen Stanzl, chief analyst at Frankfurt trading house CMC Markets, is anything but certain that the rescue operation will work: “The market suspects that the problems that have become apparent at SVB are also in other balance sheets, including in those of the greats.”

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