A Silicon Valley Bank branch in Manhattan today called the cops on tech investors trying to pull their cash out as a run on the bank forced regulators to seize its assets.
Police were called after ‘about a dozen’ financiers, including former Lyft executive Dor Levi, showed up outside the building on Park Avenue as investors scrambled to get their money out amid the biggest collapse since the Great Recession.
The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today as depositors – mostly tech workers and start-up firms – began withdrawing their money following the shock announcement of a $1.8bn loss. The bank took a hammering in pre-market with its price plunging 66 percent before trading was halted.
Investors are only insured up to $250,000 and there have already been horror stories. Ashley Tyrner, CEO of Boston wellness firm FarmboxRx, said she had at least $10m deposited with SVB and has been frantically calling her banker. She said it had been ‘the worst 18 hours of my life.’
With around $209bn in assets, SVB is the second-largest bank failure in US history after the 2008 collapse of Washington Mutual. The crash is expected to have a colossal impact on the tech sector, with many start-ups using SVB as their sole account and creditor. It is the first FDIC-insured bank to fail in more than two years, the last being Almena State Bank in October 2020.
A Brinks security truck is parked outside the Silicon Valley Bank in Santa Clara as investors line up outside after the bank shut its doors. The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today as depositors – mostly tech workers and start-up firms – began withdrawing their money following the shock announcement of a $1.8bn loss
Police were called after ‘about a dozen’ financiers, including former Lyft executive Dor Levi, showed up outside the building on Park Avenue as a run on the bank Friday morning forced the Federal Deposit Insurance Corporation to seize its assets. SVB blocked them from entering and two cop cars arrived to tell the investors to get out of the building.
Ashley Tyrner, CEO of Boston wellness firm FarmboxRx, said she had at least $10m deposited with SVB and has been frantically calling her banker. She called it ‘the worst 18 hours of my life’
Two cop cars rolled up to the bank branch of Park Avenue today after investors arrived frantically trying to pull their cash out
The Federal Deposit Insurance Corporation seized SVB’s assets today as trading was halted after its shares tumbled 66 percent in premarket
The collapse of SVB came less than 48 hours after the bank disclosed plans to raise over $2 billion from investors to counter $1.8 billion in losses from the sale of bonds, which were liquidated to cover declining deposits.
That announcement spurred a bank run, pushing the firm into failure as customers withdrew their deposits at a furious pace over fears it faced insolvency.
Following the shutdown, the FDIC said SVB depositors will have full access to their insured deposits no later than Monday morning. The federal agency insures each depositor to at least $250,000.
It means investors like Tyrner with $10m in the bank stand to lose millions. ‘It was pure and utter panic,’ she said of her mindset after learning the news.
Tyrner, who heads a company of 63 staff, told The New York Post ‘all panic broke loose’ on Thursday morning when senior executives called her saying they needed her to urgently approve a wire transfer. ‘When I went to log in to approve the wire, the system was completely crashed,’ Tyrner said. ‘It would not let anybody in.’
Tyrner said she had repeatedly attempted to call customer service and her personal banker at SVB. ‘He wouldn’t answer the phone,’ Tyrner told the Post. ‘He sent us a text that he’s very sorry. They’re trying to fix the issue to get us logged into the account.’
But when she tried contacting him later when the issue still wasn’t fixed he stopped answering. ‘He won’t get back to anyone in my company,’ she said. ‘Not even a text. We have no idea what’s going on.’
In Manhattan, former Lyft boss Levi joined other concerned investors outside the offices at around 8am. Levi said he had been told by a banker at SVB that the only way he could move funds was to go and get a cashier’s check from his local branch.
‘There’s more founders coming every minute,’ Levi told Newcomer while outside. SVB blocked their entry before calling the cops.
Levi said the NYPD were polite and friendly, instructing one person who would not leave the SVB building that he had to get out. The police then left and Levi said he did too after giving up on getting his money.
NY-based entrepreneur Brad Hargreaves warned that the failure of SVB would have a ‘massive impact on the tech ecosystem.’
‘SVB was not just a dominant player in tech but were highly integrated in some nontraditional ways. A few things we’ll see in the coming days or weeks,’ he tweeted.
People line up outside of the shuttered Silicon Valley Bank (SVB) headquarters in Santa Clara, California, on Friday during a run on the bank
People showed up to the SVB branch on Park Avenue today but were turned away
A man talks to a doorman at the SVB branch on Park Avenue Friday morning
A worker tells people that the Silicon Valley Bank (SVB) headquarters is closed this morning
‘One, SVB was incredibly integrated into the lives of many founders. Not just their startup’s bank and lender, but also provided personal mortgages and other financial services. A whole mess for FDIC (or the eventual buyer) to unwind …
‘CEOs yesterday faced a hard choice: Pull your deposits and go into default on your venture debt or risk losing everything if the bank failed. Many chose to hold tight as SVB’s outright failure seemed outlandish.
How rising interest rates led to SVB crisis
Silicon Valley Bank, which primarily caters to tech startups, saw its assets and deposits nearly double in 2021, during a boom in venture investing amid low interest rates.
The bank poured most of those funds into US Treasuries and other government bonds for safekeeping.
But on Wednesday, the bank revealed its deposits have dropped sharply, with many startups drawing down their accounts as venture funding dries up due to the Fed’s rising interest rates.
To cover the withdrawals, SVB sold off many of its bonds, which decreased in market value as interest rates rose, taking a $1.8 billion loss.
To cover the investment sale loss, the bank announced plans to raise more than $2 billion from investors.
The announcement sparked fears over the bank’s solvency, triggering a huge run on deposits that threatened to tip SVB into failure.
‘Now they may not be able to make payroll next week. Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to employing workers they may not be able to pay. Expect mass layoffs later today, Monday at latest.’
Depositors with funds above the insured amount will receive a dividend within the next week, and a receivership certificate for the remaining amount of their uninsured funds, to be paid off through the sale of the bank’s assets.
Earlier on Friday, SVB halted trading of its shares pending the announcement, after they dropped as much as 64% in premarket trading following a plunge of about 60% in the previous session.
The bank on Friday morning was reportedly in discussions for a sale — but word later emerged that a huge run on the bank’s deposits had cast doubt on a bailout merger, according to a report from CNBC citing sources.
In a memo reported by Reuters, SVB Financial Group told its employees to work from home until further notice, stating: ‘SVB is undergoing a series of conversations that have not been concluded yet to determine next steps for the company.’
On Thursday night, Founders Fund, the venture capital fund co-founded by Peter Thiel, advised startups to pull their money from Silicon Valley Bank amid concerns about its financial stability, according to Bloomberg.
Theil’s warning, and a similar alert from startup incubator Y Combinator, increased fears that a run on SVB deposits could push the bank into insolvency, if it were unable to meet the demand for customer withdrawals.
It came after parent company SVB Financial Group announced a massive equity raise to cover a $1.8 billion loss on the sale of bonds, which the bank was forced to liquidate to cover a steep decline in deposits.
On Wednesday, SVB CEO Greg Becker insisted in a letter to investors that the bank remained ‘well-capitalized, with a high-quality, liquid balance sheet and peer-leading capital ratios’
On Thursday night, Founders Fund, the venture capital fund co-founded by Peter Thiel (above), advised companies to pull money from Silicon Valley Bank
Employees stand outside of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California
Employees stand outside of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California
A sign posted at entrance to Silicon Valley Bank is shown in Santa Clara, Calif., Friday
Employees stand outside of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara
People walk through the parking lot at the Silicon Valley Bank (SVB) headquarters in Santa Clara on Friday
That plan failed to calm investors who worried whether the capital raise would be enough to cover the bank’s rapidly dwindling deposits.
SVB said its deposits were dropping faster than it had expected due to increased spending by its clients, largely technology and healthcare startups, as new infusions of venture capital dry up amid rising interest rates.
In response, billionaire hedge funder Bill Ackman led calls for a government bailout for troubled SVB, saying the bank’s implosion would harm the broader economy.
‘The failure of SVB Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash,’ wrote Ackman in a tweet.
‘If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered,’ he added.
SVB revealed on Thursday that it is battling cash burn due to declining deposits from tech startups struggling with a venture capital funding drought.
The company’s assets and deposits had nearly doubled in 2021, and the bank poured much of those funds into US Treasuries and other government bonds.
But as rising interest rates battered the tech startups that the bank primarily serves, declining deposits forced SVB to sell off bond holdings — which in the meantime had plunged in market value due to the rising rate environment.
However, SVB CEO Greg Becker insisted in a letter to investors that the bank remains ‘well-capitalized, with a high-quality, liquid balance sheet and peer-leading capital ratios.’
Billionaire hedge funder Bill Ackman led calls for a government bailout for troubled SVB, which caters to the tech startups of Silicon Valley
Nevertheless, the situation at SVB inevitably drew comparisons to prior bank runs in US history, some of which had disastrous consequences.
A bank run is when customers rapidly withdraw their deposits from a financial institution due to fears it might fail, which can become a self-fulling prophecy if the rapid decline in deposits drives the bank into default.
The onset of the Great Depression in the early 1930s was marked by a large number of runs on commercial banks, in a panic that wrought disaster on the economy.
In 1931, New York’s Bank of the United States collapsed in a bank run. It had more than $200 million in deposits at the time, or $3.8 billion in today’s dollars, and the failure triggered a slew of runs on other banks.
The largest bank failure in US history was the September 2008 collapse of Washington Mutual, then the largest savings and loan in the country and the sixth-largest overall financial institution.
After customers withdrew $16.7 billion in deposits over a 10-day period, federal regulators took the highly unusual step of shutting down WaMu on a Thursday.
Normally, the the Federal Deposit Insurance Corporation seizes collapsing banks at the close of business on Friday, to allow another institution to take over operations at the failed bank over the weekend.
The FDIC protects the money depositors place in insured banks in the unlikely event of failure. Each depositor is insured to at least $250,000 per insured bank.
This week, the turmoil at SVP sparked a market selloff in peers with similar exposure, with shares of San Francisco-headquartered First Republic slumping 16.52% Thursday after hitting its lowest level since October 2020.
The situation also raised fears of broader market contagion, after the S&P 500 bank index tumbled more than 6% in its biggest one-day drop in over two years on Thursday.
The four largest US banks — JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup — saw their share prices plunge between 4% and 6%, wiping $52.3 billion from their collective market capitalizations for the day.
Declines at the massive big four banks, while smaller in percentage, dragged markets lower, with the 5.4% loss at JPMorgan weighing more than any other stock on the S&P 500.
Silicon Valley Bank headquarters is seen in Santa Clara, California. The bank is the 18th largest bank in the US with assets of $212 billion as of September
‘The Silicon Valley raise got everybody nervous about people’s capital levels and what deposits are doing. A lot of institutional investors don’t feel great about owning certain banks right now,’ R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York, told Reuters.
‘It just gets people freaked out because Silicon Valley, historically has been a very strong, well-run bank. If they’re having issues right now, people are wondering what about other banks that are lesser quality and that don’t have the reputation that Silicon Valley Bank has.’
Turmoil at SVB followed Federal Reserve Chair Jerome Powell’s testimony this week, where he said the central bank would likely need to raise interest rates more than expected in response to recent strong inflation data.
The rout at SVB has already triggered investor concerns about the health of other US and European banks.
The S&P 500 bank index dropped 6.6% on Thursday, while a selloff in major European lenders on Friday weighed on the region’s main indexes.
However, some analysts viewed the fears as overblown, and saw the volatility as an opportunity to pick up banking stocks at a discount.
‘Fears about unrealized losses in banks’ bond portfolios, catalyzed by sharp falls in US banks’ share prices yesterday, presents a buying opportunity for European banks in our view,’ Credit Suisse analysts wrote in a note.
The chaos on Wall Street subsided somewhat on Friday, with JPMorgan shares rising less than 1% in early trading, and stock in the other major US banks dropping between 0.75% and 1.6%.