The hedge fund manager says Silicon Valley depositors are likely to have access to around 50% of their funds on Monday, but the remaining 50% won’t be available for 3-6 months.
The next few days are shaping up to be critical for Silicon Valley Bank (SVB) clients and their regulators.
The latter closed the bank, which was the go-to lender for startups and many Silicon Valley businesses, including California wineries and farmers.
The bankruptcy of SVB, which was the second largest for a bank in US history, on March 10 has rattled many investors. It was the result of a bank run, sparked by the bank’s announcement that it planned to raise $2.25 billion by issuing new common and convertible preferred shares to shore up its finances, after it sold bonds in its investment portfolio at a loss. of 1800 million dollars.
About $42 billion of deposits were withdrawn as of the end of March 9, according to a regulatory filing. As of the close of business that day, SVB had a negative cash balance of $958 million, according to the document.
The Federal Deposit Insurance Corporation took control and now manages $175 billion in customer deposits, including money from several startups and some of the biggest names in the world of technology.
The regulator also created a new entity, noting that unsecured depositors, ie SVB clients with more than $250,000 in their accounts, will not have access to their money for the time being.
This leaves many uncertainties about the ability of many start-ups to operate in the coming weeks as their funds are locked up. The FDIC said it will pay uninsured depositors an “anticipated dividend within the next week.”
‘There will be bank runs starting Monday’
The question is how much this “advance dividend” will amount to.
On its website, the federal agency describes an early dividend as a payment that “gives depositors access to a portion of their uninsured funds,” but does not say how this “portion” will be determined.
Depositors do not have to file a claim for their anticipated dividend, the FDIC said.
Financier Bill Ackman, founder of hedge fund Pershing Square Capital Management, said in a Twitter post that when the new entity that replaces SVB begins operations on March 13, the FDIC will announce that it will immediately pay about 50% of their funds to depositors.
Uncertainty will remain about the other half of his funds. Therefore, the famous financier concludes that there will be total runs on other banks this Monday, which risks accelerating the contagion and causing an even more serious financial crisis than the current one.
“From a source I trust: @SVB_Financial depositors will get ~50% on Mondays and Tuesdays and the balance will be based on value realized over the next 3-6 months,” the hedge fund manager said on Twitter, who also sells short. March 11th. “If this proves true, I expect bank runs starting Monday morning on a large number of non-SIB banks. No company will stand the slightest chance of losing a dollar of deposits, as there is no reward for this.” risk”.
He then warned that unless the FDIC does a system-wide deposit guarantee, “more bank runs start Monday morning.”
The billionaire’s reasoning is that the lack of clarity for startups, which are known to burn cash, not knowing when they will be able to access all their funds, plunges them into uncertainty that will impact their operations in terms of priorities.
The FDIC did not respond to a request for comment.
rescue?
Billionaire and investor Mark Cuban issued a similar warning during a Twitter Spaces chat.
“It’s really going to depend on how much the anticipated dividend is. If it’s 50% and you get it by Wednesday, that’s fine, because Wednesday is the 15th. And maybe payroll is a little behind, but that covers payroll for at least some percentage,” Cuban said.
“And then the next question is how well do they communicate what’s going on to the other 50%? If it’s all uncertainty and we don’t know any kind of timeline and there’s no ongoing communication, that’s going to create less of a contagion, but still a contagion. “.
Later, Ackman explained how he sees the FDIC’s involvement.
“What should the FDIC do? @FDICgov to guarantee all bank deposits Sunday night before Asia opens and call for a time out. Execute a process to recapitalize @SVB_Financial while managing the liquidation of the portfolios of UST and MBS to reinvest in UST in the near term. Determine capital hole and raise a ‘fortress’ amount of capital from investors co-led by @generalatlantic @sequoia etc. and savvy financial investors to recap the bank.”
He continued: “FDIC develops a new guarantee regime where insurance of large dollar deposits is available up to reasonable limits per account to accommodate commercial borrowers while maintaining 100% guarantee. Once the new regime is employed deposit insurance, the 100% guarantee is removed.”
The challenge for the FDIC and politicians is that any guarantee of borrower funds could be perceived as a bailout, and taxpayer money is used to protect investors, drawing similarities to government intervention in the crisis. 2008 financial
UST refers to the US Treasury bonds held by SVB and MBS refers to the mortgage-backed securities in SVB’s investment portfolio. General Atlantic and Sequoia Capital are investment companies.
For reasons of transparency, the investor said it has “no direct exposure” to SVB, nor does its firm, Pershing Square.
“Personally, I am 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 SVBs. Collectively, my risk exposure is less than 10% of my assets.”
