Silicon Valley Bank shoots self in foot

It may go down in the history books of Silicon Valley: the time its most important bank, a bank founded nearly 40 years earlier, injured itself so badly it had to be rescued by another bank, otherwise it risked collapsing. in a single day.

We don’t yet know who this “white knight” will be, but you can bet there’s a lot of conversation going on right now about who will step in and buy Silicon Valley Bank, an institution whose shares have fallen roughly over 80 % in after-hours trading from where they were at the start of the day yesterday. And why? Not because the bank is collapsing. Instead, because he completely missed some important messages at the worst time imaginable.

This, my friends, is what is called an own goal.

If you’re just playing catch-up, here’s what happened: Silicon Valley Bank lost $1.8 billion in the sale of US Treasuries and mortgage-backed securities it had invested in , due to rising interest rates. The bank is also grappling with dwindling customer deposits, given that its customer base, largely made up of startups, currently has far less cash to park at a financial institution.

Because this is where he decided to raise a bunch of money to protect his business. The plan was to sell $1.25 billion of its common stock to investors, $500 million in convertible preferred stock and $500 million of its common stock in a separate transaction with the capital firm. General Atlantic investment. The apparent purpose was to project that the bank was conservative and was collecting this money to stabilize.

Oh, however, how it backfired, and who can be surprised, given that he released his announcement of these plans just as crypto bank Silvergate announced it was winding down operations.

You might imagine someone at Silicon Valley Bank would have paused to think, “Hmm, maybe today isn’t the right time to say we’re strengthening our balance sheet.” Of course, they didn’t. Instead, at the end of the market close yesterday, they issued a convoluted press release which was so poorly received it was almost comical. Except Silicon Valley Bank is a trusted financial partner for many startups and venture capitalists who are nervously scrambling to figure out what to do next.

It’s certainly no fun for Silicon Valley Bank’s estimated 6,500 employees or its CEO Greg Becker, who found himself having to hop on a Zoom call late this morning to reassure panicked customers that he’s not was just a little press release!

It was not a reassuring performance. “My request is just to stay calm, because that’s what’s important,” Becker told countless viewers who didn’t get a chance to ask questions. Silicon Valley Bank is “a long-time supporter of you venture capitalists, and so the last thing we need you to do is panic,” he added, saying what no one never wants to hear from the head of their bank.

One such client, who asked not to be named, told us afterwards, “It’s like the end of ‘Animal House.’ Do not panic? Now I’m freaking out watching your show.

What happens from here is the question, and something has to happen soon, given how quickly the bank’s shares are falling. We’ve reached out to General Atlantic to see if it still plans to invest $500 million in Silicon Valley Bank common stock (we haven’t heard back yet).

We reached out to Silicon Valley Bank itself, which reiterated Becker’s earlier talking points. Silicon Valley Bank was just trying/trying to “strengthen its financial position”. It is “well capitalized”, has a “high quality liquid balance sheet”, displays “leading capital ratios”, etc., etc.

Again, we bet a bank like Goldman Sachs will come to the table, scoring the deal of a lifetime and keeping Silicon Valley Bank employees from running for the exits. We will find out soon enough.

In the meantime, anyone working in investor relations might want to start looking for a new job.

Perhaps the same goes for Becker, who should have done more to diversify the bank’s business – it’s been a problem hidden in plain sight for years – and who just gave traders and hedge funds a new way to trade on the current decline of the startup economy. (Becker sold a big piece of its own shares in January.)

His only hope now is to convince the bank’s remaining customers that everything is fine and hope that they will buy it.

This window closes quickly. Founders Fund and other companies reportedly advised their portfolio companies earlier today to withdraw their money. Even the VCs express support for the bank must have done the same in private, lest its portfolio companies risk losing their precious capital.

“We have enough cash to support our customers, with one exception,” Becker said earlier on that Zoom call. “If everyone thinks that SVB is in trouble, it will be a challenge.”

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