Silicon Valley Bank collapse — everything you need to know right now: Morning Brief

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Monday, March 13, 2023

Today’s newsletter is by Brian Sozzi, Yahoo Finance’s executive editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Have tips on SVB? Send confidentially to brian.sozzi@yahoofinance.com.

Welcome to the first true black swan event for markets since the COVID-induced meme stock craze.

Silicon Valley Bank’s collapse on Friday is the second largest bank failure in the U.S.

Treasury Secretary Janet Yellen said early Sunday there will be no federal bailout for the stricken bank, and she held true to those words by the end of the day.

A joint statement from Yellen, Fed chief Jerome Powell and FDIC chair Martin Gruenberg said depositors will have access to all of their money today from Silicon Valley Bank. The same goes for Signature Bank, which was closed on Sunday. No losses will be borne by the taxpayer. Any losses to the Deposit Insurance Fund to make uninsured depositors whole will be recouped by a special assessment on banks, the statement said.

Shareholders in these banks will not be protected. Senior management has been removed.

The Fed added it will make available additional funding to eligible depository institutions to help assure they can meet depositor needs.

Wall Streeters are likely still to brace for more contagion despite the extraordinary measures, while at the same time trying to convey messages this is not Lehman Brothers circa 2008/2009.

“Yes there are a couple other banks that have some tech concentration that pose some risk, but SVB was extreme in its courting of large accounts and perks. And they will try to tell you this is a risk to the entire system but it isn’t. The big banks are incredibly well capitalized and the market even told you that on Friday with JP Morgan, Citi, Bank of America and Wells Fargo all having uneventful days in the market. This will be a one (or possibly two)-off situation where a bank made a mistake with buying longer term mortgages to push for yield and with a concentrated deposit base that was incredibly loyal until they were not,” one long-time fund manager told Yahoo Finance.

As I have reminded a lot of folks in the last 72 hours, I view our job here at Yahoo Finance at this unique moment in time as to present the facts, add easy to understand context and bring our community into our world of sources across the world of business. It’s not the time to yell fire in a crowded theater (it never is), or in our field (business news) add more noise to an already unnerving situation.

This is a troubling situation to a lot of hard-working people that strive to save money and don’t have that insider Wall Street/VC access — such as my family members who asked me over the weekend if their money was safe in their local bank.

That’s a jarring conversation to be having in 2023.

Now let’s get you up to speed.

The Visuals

Only the collapse of Washington Mutual was larger than SVB’s meltdown, per the chart from strategist Charlie Bilello below.

The event has brought out the short-sellers on the regional banks, S3 Partners Ihor Dusaniwsky points out. You see the top 15 most shorted regional banks below from Dusaniwsky.

Where the shorts are in the regional banks.

The SPDR S&P Regional Banking ETF has plunged 15% in the last five sessions on pure contagion fears. Some of the ETF’s top 10 holdings include Regions Financial and Fifth Third…and Silicon Valley Bank.

The Companies Known to Be Impacted So Far (Besides Banks)

Roku: The streaming player had $487 million, or 26% of its $1.9 billion in cash at Silicon Valley Bank. “At this time, the company does not know to what extent the company will be able to recover its cash on deposit at SVB,” Roku said in a disclosure.
Etsy: The e-commerce company is reportedly delaying some payments to sellers as it used SVB to facilitate disbursement. “At Etsy, supporting our sellers is our highest priority, and we understand how important it is for these small businesses to be able to receive their funds when they need them. We recently experienced a delay in issuing payments to some sellers related to the unexpected collapse of Silicon Valley Bank. Our teams have been working around the clock to implement a solution, and we expect to pay sellers via our other payment partners within the next several business days,” an Etsy spokesperson told Yahoo Finance via email.
Rocket Labs: Space startup Rocket Labs disclosed it had about $38 million on deposit at SVB, or 7.9% of its total cash. “92% of Rocket Lab’s cash and cash equivalents are held by other financial institutions, so we are not facing a liquidity issue and do not expect it to impact our operations at this time.The process for recovering all, or a portion, of Rocket Lab’s funds with SVB will be a highly regulated one that will play out over time, and we’ll monitor its progress closely,” a spokesperson told Yahoo Finance by email.
Roblox: “Of Roblox Corporation’s $3 billion of cash and securities balance as of February 28, 2023, approximately 5% is held at Silicon Valley Bank. Thus, regardless of the ultimate outcome and the timing, this situation will have no impact on the day to day operations of the company,” the metaverse play said in a disclosure.

The Emerging Themes to Watch

The Fed’s next move: The SVB situation has cast fresh doubt on whether the Fed will raise interest rates by 25 basis points or 50 basis points at its policy meeting next week. “Turmoil in bank stocks must make the Fed a little more cautious: core banks look strong and well-hedged, but stress on regionals is a sign monetary tightening is impacting the financial system with a lag via mark-to-market losses and toughening competition for deposits,” said Evercore ISI strategist Krishna Guhu.

The Longer-Term Impact to Banks: It’s unclear how SVB will shape future returns for investors in banks, if it will at all. But there is chatter the fallout will make it difficult for larger banks to get capital relief in times of stress. Moreover, regulators could even support increasing capital regulations. Both wouldn’t be great news for bank investors.

The Yahoo Finance Team Is Here for YOU!

Yahoo Finance Live will be diving into the SVB blow-up starting at 9:00 a.m. ET with yours truly and Julie Hyman holding it down on the anchor desk. You can tune in on our homepage, app, Roku, Youtube, etc. We’ll also be posting unique content on our Twitter and other social media accounts. Expect expert analysis from our reporters running point on this developing story such as Dan Fitzpatrick, Jennifer Schonberger, David Hollerith and Brad Smith (who is on the ground at the South by Southwest festival chatting up VCs on this issue).