Saturday, March 11th 2023
Silicon Valley Bank Collapses, Causes Concern Within Tech Industry, Roku Divulges its SVB Investments
Technology Companies, Venture Capitalists and Startups are in panic after the collapse of Silicon Valley Bank on Friday, March 11, 2023. In the short term it will be a mess - customers of SVB have no access to FDIC insured deposits until Monday (March 13). Customers with investments below a $250,000 cap have been advised to make claims before a strict Monday deadline. The FDIC is forming plans to pay depositors, with investments greater than the aforementioned cap, a special dividend next week.
US Regulators have swooped in to recover assets from Silicon Valley Bank. This is the first failure of a North American banking group since the Great Recession of 2007 to 2009. Whispers of SVB's oncoming financial troubles were heard earlier this week, which prompted a run of withdrawals from the bank by worried customers. Regulators stated that they took swift action in order to "protect insured depositors." On Wednesday 8, SVB Financial Group, the bank's parent company, revealed plans of a sale of shares totalling $2.25 billion. This followed a reported loss of $2 billion, from the selling off of $21 billion of securities from its portfolio. The banking group had experienced slowdown from its investments in bonds.
Entertainment Streaming company Roku has revealed, via an SEC filing on Friday, that it has $487 million deposited with the crumbling Silicon Valley Bank. That sum represents roughly 26% of Roku's total cash reserves and equivalents. The company also mentioned that its investments with Silicon Valley Bank are mostly of an uninsured status. Roku said. "At this time, the company does not know to what extent the company will be able to recover its cash on deposit at SVB." A spokesperson for Roku told Business Insider by email, "As stated in our 8-K, we expect that Roku's ability to operate and meet its contractual obligations will not be impacted and we continue to have access to $1.4 billion in cash and cash equivalents which are distributed across multiple, large financial institutions."
It remains to be seen how many more companies will be affected by the collapse of Silicon Valley Bank. News outlets are today reporting that Roblox Corporation, Rocket Lab and Vice Media are SVB customers. Financial analysts are keeping an eye on the resulting fallout, and predictions have been posited regarding the fragile status of certain banking groups. The US Federal Reserve, as well as other international central banks, have sharply raised interest rates and borrowing costs in attempts to dampen the effects of inflation. This has had a knock-on effect on the bond market - portfolios decline in value as interest rates rise.
Sources:
BBC News, Business Insider
Entertainment Streaming company Roku has revealed, via an SEC filing on Friday, that it has $487 million deposited with the crumbling Silicon Valley Bank. That sum represents roughly 26% of Roku's total cash reserves and equivalents. The company also mentioned that its investments with Silicon Valley Bank are mostly of an uninsured status. Roku said. "At this time, the company does not know to what extent the company will be able to recover its cash on deposit at SVB." A spokesperson for Roku told Business Insider by email, "As stated in our 8-K, we expect that Roku's ability to operate and meet its contractual obligations will not be impacted and we continue to have access to $1.4 billion in cash and cash equivalents which are distributed across multiple, large financial institutions."
133 Comments on Silicon Valley Bank Collapses, Causes Concern Within Tech Industry, Roku Divulges its SVB Investments
This isn't a "10s of millions" kinda issue. This is 10s-of-billions.
Seriously, you can't make this shit up.
There are also regulations with regards to where, when, and how often you can trade if you are an insider.
Without getting too political: the "insider trading" issue most commonly talked about in political circles is that the "definition of insider" isn't sufficient. That a lot of people with inside knowledge aren't considered insiders as the law is written right now.
I'd argue that the fact that we can easily grab SEC Form 4 over SIVB over at Edgar is the system working as intended.
This is another example of Greed in the industry and the under belly of Silicon Valley (and other wealth hubs) mindset OF short term profits and risky financial foundations vs long term financial growth with a solid foundation.
I expect more in the Banking industry overall as IMHO as many are doing similar things of packaging toxic investments and selling it globally to get their money back.
The abusive Greed that you been seeing of late, coming from AMD, Intel, Ngreedia, Apple, and all of the FineTech companies is normal here in Silicon Valley and blatant.
I have seen this first hand and I really don't like dealing with their mindset at all. I know my finances are solid because of my long term financial foundation.
We are already in a form of a recession. IMHO it is going to get much much worse for many people in my region.
Because they lack the understanding and ignore the facts of what happen just a few years ago when the Great Recession started to wind down in 2012.
And to all of those investors who took that risk in dealing with SVB. You had a full year of financial warnings to get your sh!t together and you did not. If I could see the warnings so could have you. In this world that is based on Tangible Assets if you are not able to govern your own Assets wisely then you deserve everything that is coming to you.
A perfect example of GREED.
www.cnbc.com/2023/03/10/roku-says-26percent-cash-reserves-stuck-in-silicon-valley-bank.html
Unless the Government does a full bailout, greedy companies like Roku are screwed. And that is their own damned fault.
Why is it their fault though?
That being said: all these startups withdrawing money at the same time is 100% risk management that they also should have accounted for. Silicon Valley bank lost money in Q4 2022 because so many startups did poorly and were unable to raise capital. Its like Silicon Valley bank completely forgot about 2001: a "tech crash" that could affect startups and force everyone (erm... everyone in tech at least) to withdraw their money at the same time.That's literally the deal US Government made with AIG, aka a bailout. It was also called TARP.
US Government forcibly took over various banks, in effect becoming the sole shareholders. (And minority owners of the banks that didn't fall apart). Using their new power as major shareholders, US Government assigned a CEO to handle finances for a few years, before selling all the shares + bonds + assets for a profit by 2014.
Perhaps it was politically incorrect to call this plan a bailout in 2008. But... that's the name that got stuck for whatever reason.
Lets not underestimate the scale of the stampede we just witnessed two days ago here. This is a sector that has been hit with mass layoffs for months-after-month, a sudden loss of capital (2022 was the smallest year for capital raises for tech startups in decades). The people were skittish from already weakening economic conditions and were ready to stampede on the slightest sign of trouble.
The money will be there and is still good.... But it will take 10 to 30 years, because of the insane decision of Silicon Valley bank to choose such long-dated bonds. But they needed all that money on Thursday this past week, exactly Thursday, and no later.For now, I'm optimistic enough to test out how good these Dodd-Frank era "Stress Tests" have been for the past 15 years. I'm willing to give this a few weeks and see if the Dodd-Frank protections can hold up the financial system and prevent this from spreading.
I'm hoping that no bailout will be necessary (be it a "good" bailout, or a "bad" one), and that this entire event can remain isolated. After all, that's what we've been preparing for the past 15 years as a country.
I obviously see the problems that can occur if things start to get out of hand. But... we're not in a 2008-era like event yet. Lets wait and see what happens, and have at least a little bit of trust in the safety nets we've installed over the past decade.
The theory of Federal Reserve Banking is that one bank (IE: US Government) is so big, that they are willing to take any bet (no matter how big that bet is), and risk it if they think it still has a chance to be profitable. If there's no chance for profits, let the thing collapse. But if there's a chance for profits, why destroy good money? Someone ought to pick up the tab and make a profit 5 years later. US Government playing that role is a-okay in my eyes.
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EDIT: The thing that bothers me about this SIVB situation, is that 10Y and 30Y Treasuries have lost 20% of their value in the past year. As a tax-payer, I don't want to take on that kind of hit. It just doesn't look profitable to me. So TARP / 2008 == money maker. SIVB == money loser, probably. If its a money-loser, then we're basically forced to liquidate. We as a country / bank of last resort should NOT taint our good money with their bad money, so to speak.
I have not forgotten the 2008 crisis. It was nasty.
So I guess we will have see how bad this turns out to be. Avoid a big financial crash only local trouble or is it financial crisis 2.0 or even worse. Hold on to your hat and glasses, this can potentially be a wild ride.
www.cnbc.com/2023/03/11/crypto-firm-circle-reveals-3point3-bln-exposure-to-silicon-valley-bank.html
Meanwhile in the UK ...
And given what has happened over the last year on Treasuries, the market agrees with my assessment. 10Y and 20Y, and 30Y bonds are permanently going to be devalued. Its the only way we can fix the inflation issue. And we have more rate-hikes to go before inflation is fixed.
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What I find insane about this whole SIVB situation, is that they're watching this massive devaluation of 10Y and 30Y notes, and they stupidly decide to hold onto them? Without thinking about what the Fed is doing or how inflation is ruining the country right now? As the FFR continues to increase, 10Y and 30Y will necessarily devalue. Its just how the mechanics of this entire situation work.
So yes, I'm worried. Because if the Fed stops the rate hikes, we're going to be stuck with 6% inflation. If we continue the hikes, we're looking at this banking problem. We're beginning to look trapped between a rock and a hard place here.
For now, I'm hoping this is a one-off banking issue isolated to SIVB. But the issue warrants further investigation and discussion.
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New post:
fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/Well, this answers my question I posed earlier. The "Chief Risk Person" was non-existant between April 2022 through January 2023, during the time when these epic rate-hikes hit the economy.