Billionaire Bill Ackman has warned of the “vast and profound” consequences of the US government allowing Silicon Valley Bank (SVB) to fail without protecting all depositors. “No company will stand the slightest chance of losing a dollar of deposits, as there is no reward for this risk. In the absence of a system-wide FDIC deposit guarantee, more bank runs begin Monday morning,” he warned.
The government has until Monday morning to fix its ‘soon to be irreversible mistake’
Billionaire Bill Ackman, CEO and portfolio manager at Pershing Square Capital Management, has warned of the “vast and profound” consequences of the US government allowing Silicon Valley Bank to fail without protecting all depositors.
On Saturday he tweeted that the government has until Monday morning to fix its “soon to be irreversible mistake”, explaining:
By allowing SVB to fail without protecting all depositors, the world has realized what an uninsured deposit is: an unsecured illiquid claim on a failing bank.
He stressed that unless JPMorgan, Citibank or Bank of America buy Silicon Valley Bank before the market opens Monday, or the government provides a guarantee for all SVB deposits, “the giant sucking sound you’re going to hear will be the withdrawal of substantially all uninsured deposits”. from all but ‘systemically important banks’ (SIBs)”.
Expecting these funds to be “transferred to the SIBs, US Treasury (UST) money market funds, and short-term UST,” Ackman noted that “there is already pressure to transfer cash to UST and UST money market accounts.” to the substantially higher yields available in risk-free UST versus bank deposits.” The billionaire continued:
These withdrawals will drain the liquidity of community, regional and other banks and begin the destruction of these important institutions.
“Thousands of the most innovative and fastest-growing enterprise-backed companies in the US will begin to stop paying payroll next week,” he added. In addition, he noted that increased demand for UST in the short term “will drive short-term rates lower, complicating the Federal Reserve’s efforts to raise rates to slow the economy.”
Government’s failure to guarantee SVB deposits has ‘far-reaching and profound’ consequences
Ackman explained that Silicon Valley Bank’s top management “made a basic mistake” by investing short-term deposits in longer-term, fixed-rate assets, thus “a run on the bank occurred” when interest rates rose to short term.
It wasn’t just SVB’s top management that “goofed up,” the billionaire claimed that the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) “also got it wrong” in their risk monitoring of the system. banking. “SVB should have been high on their watch list with over $200 billion in assets and $170 billion in deposits from commercial borrowers in the same industry,” Ackman said, emphasizing:
The failure of the FDIC and OCC to work must not be allowed to destroy thousands of our nation’s highest potential and fastest growing businesses…while permanently impairing our community and regional banks’ access to low cost deposits
The Pershing Square executive shared that his “detailed review of SVB’s balance sheet suggests that even in a liquidation, depositors should get around 98% of their deposits back.”
He argued that the cost of the government guaranteeing SVB’s deposits “would be minimal” even without assigning any franchise value to the bank. Meanwhile, “the unintended consequences of the government’s failure to guarantee SVB’s deposits are wide and deep and must be considered and addressed before Monday,” she warned.
Possible bank runs from Monday
In a follow-up tweet on Saturday, Ackman wrote that according to a source he trusts, “SVB depositors will get ~50% on Mondays and Tuesdays and the balance will be based on value realized over the next 3-6 months.” . The billionaire emphasized:
If this proves true, I expect bank runs from Monday morning on a large number of non-SIB banks. No company will stand even the slightest chance of losing a dollar of deposits, as there is no reward for this risk. In the absence of a system-wide FDIC deposit guarantee, more bank runs begin Monday morning.
Ackman further revealed on Twitter that neither he nor his company, Pershing Square, have direct exposure to Silicon Valley Bank. However, he is “personally an investor in some of the lesser-known biotech and venture funds, mostly early stage, and some early-stage startups that may have some exposure to SVB,” the billionaire detailed, and He added that collectively, their “risk exposure” to the troubled bank is less than 10% of their assets.
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