Federal regulators attempt to contain fallout from SVB collapse

Silicon Valley Bank, or SVB, announced late Wednesday that it had to take action on its financial position, by launching a proposed public offering of $1.25 billion of common stock. Despite the implication that the bank was in dire need of cash, SVB told investors it was a “trusted financial partner of the global innovation economy.”

Providing banking services to tech companies, especially those in the finance space, has become something investors are shying away from as the Federal Reserve, FDIC, and Office of the Comptroller of the Currency, have penned operational warnings.

SVB sold securities after venture capital funds like Peter Thiel's Founders Fund pulled deposits, and this started a bank run. As of midday Friday, SVB was closed by the California Department of Financial Protection and Innovation, and the FDIC had taken control of customer deposits, some $175 billion.

On Sunday evening, the US government informed anxious SVB depositors that they’d have access to all the money they stashed with the lender today, even if the amount exceeded the $250,000 limit insured by the FDIC. In addition to backstopping depositors, the Fed is offering additional funding to some banks to limit the contagion from spreading across the banking sector.

However, in their announcement, regulators also noted the closure of a second bank, New York-based Signature Bank, over “systemic risk.” All of Signature’s depositors will be made whole, they said.

Fintech has faced increased regulatory scrutiny as figures such as FTX’s Sam Bankman-Fried seemed to have schemed investors into financial losses.

With four additional criminal cases being brought against the cryptocurrency exchange founder, it appears regulatory agencies are still looking to go after the Wild, Wild West that the Silicon Valley tech scene has become, with an eye toward reining in some of its more questionable practices.

SVB was attempting to raise more than $2 billion in capital to cushion the impact of bond sales. Loans potentially put its stock in a vulnerable position.

The bank’s assets will now be sold to the highest bidder. The FDIC, which now controls SVB, began an auction for the bank’s assets Saturday night. The cleanest outcome would be a single buyer, but there are only a few banks big enough to realistically scoop it all up, such as JPMorgan, Citigroup, or Bank of America. As of Sunday night, no deal had been reached.

Irina Berkon, co-founder of FBBT Holdings, a firm that launched a holding company and a bank a few weeks ago, told CFO Brew that in Silicon Valley, “SVB used to be a great thing; they’ve been very, very helpful to startups, and they’ve had a really good relationship with everybody here.”

Berkon said that she thinks much of the firm’s problems come down to due diligence.

“[It’s] proper due diligence, and just being, very committed to their LPs as well,” Berkon remarked, “the VCs sometimes play with someone else’s money. So it’s not a big deal if this happens to the managers, because it’s the LPs, the investors in the VCs who ultimately suffer.”

The big issue is that counting on someone else’s moves, or the market gossip, can be great for lead generation but it’s not so great when you’re writing a check, Berkon noted.

At the beginning of earnings season, Gina Martin Adams, head of equity strategy and fund research for Bloomberg Intelligence, told CFO Brew she was looking out for a sector leader—at least one industry group stock that would climb this year after last fall’s drop.

Martin Adams said popular sentiment suggested it would be the banking or technology sectors. Now, it looks like there was a messy collision between tech and banking, which might be the first signals of collapse in the fintech sector in Q1.

Despite the headwinds around increased regulation and bank issues like SVB, Martin Adams said she thinks early cyclicals still offer great opportunities. But, she notes, “the yield curve just continues to stay at extremely deep inversion levels.”

Regardless of the reasoning, Berkon said that the banks are being unfair to their lenders, telling CFO Brew, “I shouldn’t have to wake up in the morning and see my bank in the news and think, ‘Where am I going to go next?’”

However, Berkon said that she gave a lawyer their list of banks, having used multiple for hedging purposes, in case anything goes under.

And, she adds, it looks like some bigger-name investors may have escaped disaster: Berkon told CFO Brew that Taylor Swift apparently got an offer from SBF, which included a ticketing arrangement to sell concert tickets as NFTs (as if they weren’t hard enough to get), and even she said no.

“I don’t know if she’s such a financial expert…but I’m gonna give her a little nod and say, ‘You know, good job, good job that she didn’t fall for that,’” Berkon remarked. While Swift could not be reached for comment (we tried), she is known for her due diligence.—KT, NF

Editor’s note: This story was first published on Friday, March 10 and was updated on Monday, March 13 with reporting from Neal Freyman. It was updated again on Tuesday, March 14 with additional details.