Mar 10, 2023

Silicon Valley Bank’s Financial Stability Worries Investors Panic swept through the start-up industry on Thursday as investors at some venture capital firms urged portfolio companies to move their money from Silicon Valley Bank over concerns about the tech industry stalwart’s financial stability. Silicon Valley Bank’s spiral was set off by its surprise announcement Wednesday that it would take extraordinary and immediate steps to shore up its finances amid a dimming economic environment for the start-ups and other technology companies that dominate its client base. The bank disclosed that it had sold off $21 billion of its most liquid, or easily tradable, investments; borrowed $15 billion; and organized an emergency sale of its stock to raise cash. Banks are loath to take any of those steps — let alone all three at once — and when they do, the moves are typically carefully choreographed. Silicon Valley Bank’s stock price plummeted 60 percent on Thursday as investors rushed to sell shares after the announcement. A bank spokeswoman did not respond to a request for comment. If Silicon Valley Bank failed, it would be the second-largest such unraveling in U.S. history, smaller only than the run on Washington Mutual during the 2008 financial crisis, when that bank had roughly $300 billion in customer deposits. At the end of last year, Silicon Valley Bank reported $212 billion in customer assets. The bank’s slump dragged down the stock prices of its peers as concern swirled that others could run into similar problems. First Republic Bank in California fell 16.5 percent, Signature Bank in New York more than 12 percent and Zions Bancorporation 11.4 percent. Bigger banks also suffered. Bank of America and Wells Fargo dropped 6.2 percent while JPMorgan Chase fell 5.4 percent. The KBW bank index, which tracks the stocks of 24 major banks, fell nearly 8 percent, its worst one-day move since June 2020 in the early stages of the coronavirus crisis. Greg Becker, chief executive of Silicon Valley Bank, urged venture capital firms to stay calm in a conference call on Thursday. Our Coverage of the Investment World The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future. But a number of investors, including Arjun Sethi, an investor at Tribe Capital, advised companies to move some or all of their money from the bank. “Almost by definition, any bank with a business model is dead if everyone moves,” Mr. Sethi wrote to Tribe Capital founders in a memo. Other firms made similar moves, according to four memos viewed by The New York Times. Founded in 1983, Silicon Valley Bank is small compared with Wall Street banks but has an outsize footprint among tech start-ups. It calls itself the “financial partner of the innovation economy.” In addition to its other banking services for start-ups, it is known for providing them loans and private wealth management to tech workers. Some start-up investors took to Twitter to predict that the bank would have to sell or be bailed out. Others tapped out premature eulogies, praising the bank for being a good partner over the years. Many sought to calm. Mark Suster, an investor at Upfront Ventures, wrote that he believed the only financial risk to Silicon Valley Bank’s customers was a panic that led to a run on the bank. “Think about how many companies would be wiped out overnight if SVB went bankrupt,” he said in an interview. “This would be catastrophic, and people shouldn’t be making jokes of it.” Villi Iltchev, an investor at Two Sigma Ventures, urged the industry to “support” the bank by not withdrawing money. Roseanne Wincek, an investor at Renegade Partners, wrote that a bank run caused merely by panic would be a “self own” for the industry. “There are two things in life that only exist if you believe in them: God and bank runs,” said Anshu Sharma, chief executive of Skyflow, a data privacy start-up. He is also an investor in 65 other start-ups, and he urged his portfolio companies to sit tight. Sunny Juneja, founder of Canopy Analytics, a Bay Area start-up focused on real estate technology, said that he had tried to move his start-up’s cash — a few million dollars — out of Silicon Valley Bank after his advisers and investors told him to do so on Thursday, but that the bank’s online portal was down. He spent the afternoon trying to set up an account at another bank. “I’m doing everything I can in the shortest time period to make this happen,” Mr. Juneja said. He said he felt bad, because Silicon Valley Bank had been a good partner, but saw no upside to staying with it amid the panic and no downside to leaving. A Silicon Valley Bank executive, in a note sent to clients on Thursday and viewed by The Times, wrote that it had “been a tough day” but that the bank was “actually quite sound, and it’s disappointing to see so many smart investors tweet otherwise.” Like all its peers, and consistent with regulations, Silicon Valley Bank holds only a small portion of its customer deposits in cash available to be immediately withdrawn. The vast majority are either lent to other customers or invested to earn a return. That raises the specter that a rush of withdrawals would leave it unable to pay. The most immediate way to forestall the crisis would be to persuade clients not to pull their funds. In a letter to customers on Wednesday, Mr. Becker said the bank enjoyed the “financial position to weather sustained market pressures.” The letter, however, noted that customer deposits had come in lower than forecast in February, and did not address any withdrawals since then. After Mr. Becker’s letter, Moody’s downgraded the bank’s bonds rating and slashed its outlook to negative, from stable. “Moody’s does not expect the environment will recover enough for SVB to materially improve its profitability, funding and liquidity,” it said. The Federal Reserve Bank of St Louis had warned last month that as interest rates have risen, the value of banks’ investment assets has fallen, with those losses then denting banks’ capital. Some start-ups quickly angled to cash in on Silicon Valley Bank’s struggles. An executive for one much smaller rival, Levro, sent a note to potential customers that said it had “an expedited processing/approval process for current SVB customers.” Joe Rennison contributed reporting from New York.