Silicon Valley Bank: Fintech startups and scaleups are desperate for clarity

The stability of Silicon Valley Bank, whose $210bn of assets make it the 16th largest US bank, rattled investors yesterday prompting them to dump the stock which ended the day down c.50 per cent. 

Is this a Lehman moment? 

This question feels both pompous and increasingly cliched when applied to the latest financial cause for concern. 

But for the hundreds of fintech and other startups and scaleups who are customers and partners of Silicon Valley Bank though, the rapid plunge of its share price is more than cause for concern.

The stability of the bank, whose $210bn of assets make it the 16th largest US bank, rattled investors yesterday prompting them to dump the stock which ended the day down c.50 per cent. 

Pre-market trading means the stock is down 79 per cent, according to Bloomberg, in less than 24 hours. These things don’t happen very often to blue-chip names such as SVB.

The crisis is complex but Silicon Valley Bank is in trouble, says Sardine’s Simon Taylor.

The issues stem from SVB announcing a $2.25bn share sale to cover losses and, Taylor adds, seeing customers' deposit base dwindling as “the tech correction bites”.

“Imagine losing 11 per cent of your income and seeing your costs rise by 9 per cent. SVB lost 11 per cent of deposits in a single year. That is massive because deposits fund all lending activity. As interest rates rise, the cost of holding those deposits has increased (imagine the tax on income to a bank). As interest rates rise, the cost they pay for their bonds has also increased,” he said.

This period has s left SVB “underwater and bleeding deposits,” as he puts it. 

“The only way out SVB had was to sell equity (more shares) to cover its losses. This move has spooked the market because SVB is historically a very well-run bank and has the market worrying about exposures other smaller banks might have to the tech sector with Bancorp shares falling 20 per cent in the same period,” Taylor said.

While not a household name SVB is one of the most important nodes in the fintech and broader tech world with a large European operation based in London. 

This UK “branch” serves many venture capital and tech firms. Dozens if not hundreds of firms are either customers or partners of SVB within the fintech world. 

For example, a new £300m syndicated debt facility for Wise in October 2022.

“We have minimal exposure to SVB via a credit facility they are part of together with 6 other major banks, and a small cash balance in an operational corporate account," a Wise spokesperson told AltFi.

The bank has also invested directly in many well-known names, typically through debt financing.

For founders and VCs the concerns are clear. SVB is both an important source of capital as well as where they hold their cash.

But the reality is whether the crisis can be resolved quickly or whether it is indeed another ‘Lehman moment’ is unclear.  Some clarity is desperately needed.
 

 SVB were approached for comment for this article.