Funnycontrol | Silicon Valley: Real life edition

SVB is not a new age bank, it’s been around for 40 years. Where it slipped up was in the concentration of large-sized deposits.

I loved HBO’s Silicon Valley, a hard hitting comedic satire of the Silicon Valley culture from sky high valuations to plunging reputations.  You could be forgiven for thinking “Silicon Valley Bank” (SVB) is a sequel to the show. But it looks like it might well be a prequel to the fun credit events we can expect in 2023.  Researching for this article I came across someone asking “Is Silicon Valley Bank a real bank?”. I feel this question is being asked by depositors and regulators.

It seems while Jerome Powell was busy raising interest rates, SVB was too busy watching its diversity & inclusion scores  than the plunging value of its treasury holdings. The value of treasury securities and Interest rates have an inverse relation, a lot like the careers of Anil and Mukesh Ambani.  Now SVB went through what is called a bank run. If this sounds like the bank is running away with your money you would not be very far off.  A lot of startups had their money in Silicon Valley Bank because it had the words “Silicon Valley” in it. Not to be outdone, the Governor of Texas, Austin is promoting their own tech hub called “Silicon Hills” (True story). Ironically, the completely unrelated SVC co-operative bank in India almost suffered a run because of its similar sounding name

Now a bank run happens because banks typically lend out more money than they own. This usually happens when you hire MBAs. All this is fine as long as all depositors do not rush to withdraw their funds at once.  The bank makes money and the MBAs make Linkedin posts about it. But when everyone rushes to withdraw their funds at once, its like an Indian family after the family patriarch has died without leaving a will.  People start assessing who they need to liquidate in order to remain liquid. So to sum up, many startups had accounts with SVB. JP’s rate hikes caused a funding freeze in the startup world with the end of free money so they all went to SVB to withdraw their money like factory workers in an 80’s Bollywood film. Unfortunately, JP was playing double villain. Most of SVB’s investments were in Treasury securities that had declined due to the inverse Anil-Mukesh curve. So when they started struggling with redemptions they told the depositors and the regulators “Yeh humaari expertise nahin hai, we are out, but check out our excellent ESG scores”.

If you think Covid is contagious, have you seen a bank sneezing? There was immediately another bank failure whose name quite ironically was Signature bank. Now the bank is worth less than it’s own signature.  Whenever America sneezes, Europe catches H3N2. Immediately Credit Suisse had its investors asking “Credit Who is?” as its shares plunged lower than the troughs in Toblerone chocolate. Eventually the SNB or Swiss National Bank, not to be confused with SVB offered a $50 bn support, claiming “All is well”.  This is as re-assuring as the claims by the FM on growth this year.

I expect this is only the start of many real life episodes of “Silicon Valley” to be unleashed by Jerome Powell’s war on inflation.  A few years ago a US president unleashed America’s “War on drugs”. In true American fashion, the war is now being waged with itself while the drugs proliferate like finfluencer accounts on Twitter. As a market addicted to the cocaine of ultra-low interest rates comes to terms with this new war, expect the collateral damage to be your stock portfolios. At funnycontrol we will continue to report on this carnage. Please like, share and comment if you support our war on boredom.