In just a few days, the collapse of Silicon Valley Bank (SVB for short) began to spread, causing the biggest crisis in the US financial market after the subprime mortgage crisis. In this case, at least, Silicon Valley Bank has achieved Silicon Valley speed, as the name suggests.
On March 9 local time, as the sixteenth largest bank in the United States that focuses on PE/VC and technology-based corporate financing, SVB announced that it would sell securities worth approximately US$21 billion, and admitted that the transaction would result in approximately US$1.8 billion. loss.
Then the above news immediately triggered a "financial tsunami". A large number of SVB customers began to line up to withdraw cash at the bank gate so within 14 hours, the withdrawal amount requested by customers reached 42 billion US dollars, which directly led to the deficit of SVB's cash account.
In the evening of the next day, Silicon Valley Bank directly announced that it had entered bankruptcy liquidation procedures.
This sudden disaster became the depth bomb that was dropped on Wall Street and even the global financial circle last weekend. Every practitioner was worried about the future and worried that the subprime mortgage crisis in 2008 would happen again.
Because many of them will think of it at this moment, this crisis triggered by liquidity has actually been laid down more than half a year ago.
In September 2022, just like Silicon Valley Bank this time, Credit Suisse Group also suddenly announced the sale of its trust business. You must know that Credit Suisse's trust business has always been very stable, and it is a very high-quality internal business. Credit Suisse will not sell unless absolutely necessary.
Indeed, at that time, Credit Suisse’s liquidity was put to the test. A large part of the reason was that the value of various assets plummeted under the pressure of the Fed’s interest rate hike, and in the high-interest rate environment, the revenue of the investment banking business that Credit Suisse relied on plummeted.
Similarly, the root cause of the Silicon Valley Bank crisis this time is the conversion of the Federal Reserve's monetary policy. Although it is an inevitable process from cutting interest rates to raising interest rates, being too hasty will also lead to increased market liquidity risks.
If there is any difference between this crisis and the one in 2008, the biggest point is that the subprime mortgage crisis was triggered by the two mortgage crises, and the real estate and financial industries in the United States were the first to be affected, as well as related industries in the industrial chain.
Moreover, because the subprime mortgage crisis fermented into a global financial crisis, in order to alleviate the crisis, the Federal Reserve formulated a series of quantitative easing policies. Although it withdrew a few years ago, it came again during the epidemic. To a certain extent, this has contributed to innovation and entrepreneurship in Silicon Valley for more than ten years.
But this time, it was SVB, known as the "financial partner of the innovative economy", that triggered the crisis. For a long time, SVB has focused on serving innovative, high-growth, and high-risk high-tech industries.
According to statistics, SVB has served more than 30,000 start-up companies, more than 600 venture capital institutions, and 120 equity institutions, and is the most influential commercial bank among emerging technology companies in the United States. To some extent, SVB can be seen as one of Silicon Valley's vane and barometer.
Therefore, the SVB crisis will be directly transmitted to the entire US innovation market, from the liquidity risk of banks to the liquidity risk of enterprises.
These start-ups fed by direct financing will realize that for any industry, liquidity risk is "the elephant in the room."
01
One stone stirred up thousands of waves, and the collapse of SVB caused a series of chain reactions in the technology circle.
The latest news is that the US government announced that all depositors of SVB can get back their deposits from the 13th, and the losses will not be borne by taxpayers. But users are still anxiously queuing at the gate of SVB, waiting for their funds to be cashed out.
According to public information at the end of 2022, SVB has about US$209 billion in assets and US$175.4 billion in deposits, SVB has no retail business, and its customers are all enterprises. Therefore, most of the people who are actually at risk are start-ups.
For these companies, the cash flow itself is not abundant, and even a one-month liquidity crisis is enough for the company to face closure.
Garry Tan, CEO of the famous startup incubator Y Combinator, predicted that the SVB thunderstorm may affect thousands of start-ups, and one-third of the companies will not be able to pay wages in the next month due to the freezing of funds. For start-ups, this is a "destruction disaster".
Many companies have blown themselves up to avoid higher risks.
The cryptocurrency company Circle tweeted that it holds $3.3 billion in SVB, but emphasized that there are still $40 billion in reserves; streaming media hardware service provider Roku said that 26% of its cash reserves are stored in SVB, and most of them are uninsured; Stocks" Roblox says about $150M in cash hit by SVB debacle...
Chinese Internet companies far across the ocean have also been affected.
Many years ago, Wang Xing, the founder of Meituan, posted a screenshot of the account associated with SVB, showing more than 60 million US dollars. After the news of SVB's bankruptcy broke out, screenshots of Wang Xing's conversations about wanting to defend his rights were circulated. Perhaps because the news became more and more true, Meituan officials came forward to deny it and said that the company no longer had an account with SVB.
In addition, Pan Shiyi, who was rumored to have a deposit of over 100 million yuan in SVB, also posted a response on Weibo, saying: "We have never opened an account with Silicon Valley Bank, and we have never deposited money."
Meanwhile, it was discovered that SVB CEO Greg Becker sold about $3.6 million worth of company stock in February, a move that has been called into question. The outside world believes that the management has already anticipated the risk of a run, but they did not expect it to be so out of control after the news was disclosed.
At present, many small and medium-sized enterprises with accounts in SVB have launched self-rescue measures.
According to US media reports, some depositors are selling their deposits in SVB at a large discount to raise cash and solve their urgent needs. On the trading platform Cherokee Acquisition, non-insured SVB deposit transfer offers are between 50% and 40% off.
SVB's run shows the current jitters in Silicon Valley. After experiencing the difficult 2022, financing in the technology industry has become more and more difficult. Entrepreneurs no longer have the original slack geek temperament and need a sense of security that everything is under control.
But on the other hand, the pervasive depression has also aroused a stronger sense of unity in the US financial and technology industries. The industry does not want to repeat the "Lehman moment" in Silicon Valley and does not want to repeat the mistakes of the Internet bubble at the beginning of the century.
It has almost become the consensus of Silicon Valley and Wall Street to control the development of the situation and weaken the scope of influence.
According to sources, the heads of several investment institutions held an online meeting on March 10 to discuss countermeasures. According to statistics, more than 300 venture capital firms have signed the statement led by General Catalyst.
In the statement, investment institutions praised the important role of SVB in the past forty years, calling it an "important platform for the American entrepreneurial industry and supporting the innovation economy". ". The agencies asserted that the investor would continue to maintain a commercial relationship with SVB should SVB be acquired by another entity.
The startup incubator Y Combinator also took the lead in publishing a petition co-signed by hundreds of entrepreneurs, calling on U.S. Treasury Secretary Janet Yellen and other regulators to intervene in the SVB bankruptcy, demanding "relief and attention to small businesses, start-ups, and employees of companies with deposits in the SVB," and implored Congress to "reinstate stronger regulatory and capital requirements for regional banks."
Musk, who is always surfing the front line of the Internet, will naturally not let this hot spot go. Faced with Razer CEO Chen Minliang's tweet that "Twitter should acquire SVB and set up a digital bank", Musk quickly replied: "I am open to this view."
02
According to the financial report, from 2020 to 2022, SVB will achieve annual profits of US$1.294 billion, US$2.073 billion, and US$1.609 billion respectively. Therefore, the fundamental reason why SVB can get the support of the industry is that it itself is regarded as a "top student" in the banking industry. People in the industry also recognize that the thunderstorm is not a problem with SVB's business model, but a mistake in investment and decision-making, and even many institutions Point the finger at the Fed.
In the 1980s, it was difficult for scientific and technological innovation companies lacking physical fixed assets and mainly intangible assets such as intellectual property rights to obtain enough loans from established banking giants. The founding team of SVB seized this pain point to ride the Internet revolution. Dongfeng laid a piece of heaven and earth.
In short, SVB follows venture capital institutions and becomes a bridge between venture capital and technology innovation enterprises. After a start-up company receives venture capital, SVB approves a credit line according to a certain percentage, and at the same time absorbs deposits from venture capital institutions and technology companies. Because there is no collateral, SVB usually requires borrowing companies to provide 3-5% warrants, and attaches low-interest deposit requirements to the loan conditions to achieve "high-interest margins."
Internet technology companies have created countless myths of wealth creation in the past two decades of rapid development, and SVB has also benefited a lot from it. This set of "investment-loan linkage" models, which has been proven feasible by the American science and technology circle, has also been imitated by countries all over the world in the wave of technological entrepreneurship in the past ten years.
After the outbreak of the new crown epidemic in 2020, the stay-at-home economy has driven the market value of Internet companies to soar. The Federal Reserve has aggressively carried out quantitative easing policies and promised to maintain zero interest rates for a long time, which has ushered in a new wave of financing for the global technology industry.
It has become extremely easy for Silicon Valley technology innovation companies to obtain financing, and a large number of funds have poured into SVB. According to statistics, the total deposits of SVB soared from US$76 billion to US$190 billion.
After the growth of deposits, because the Federal Reserve's benchmark interest rate is at a low point and the profit margin is very limited, SVB chooses to invest in relatively safe fixed-income assets such as U.S. bonds and mortgage-backed securities (MBS). According to the disclosure, SVB's MBS holdings have increased by nearly US$80 billion a year, 97% of which are over 10 years, with an average annual rate of return of 1.5%.
SVB will have no problems if the tech industry keeps growing at a high pace, but the industry's downturn can happen in an instant.
In 2022, the U.S. technology circle will be hit hard, the stock prices of the giants will plummet, and financing will become extremely difficult. In order to maintain normal R&D and operation, start-ups can only consume bank deposits. At the same time, the Federal Reserve will raise interest rates 8 times from March 2022, and the interest rate will increase from 0.25% to 4.75%. MBS with an annual income of 1.5% appears to be very cost-effective in comparison.
In order to ensure the liquidity of funds, SVB had to sell the MBS bonds it held at a loss in the case of a mismatch between the maturity of assets and liabilities, and chose to announce this news. Already startled technology innovation companies and venture capital institutions poured in, and the run-on made the situation out of control.
In the eyes of analysts, the SVB incident is an accidental event superimposed by multiple factors, and it is unlikely to be transmitted to the entire industry.
To some extent, the SVB thunderstorm has stimulated the risk aversion sentiment in the industry, reducing the probability of a run event in the near future. Seeing the SVB turmoil, the Federal Reserve may make a new judgment on the financial risks brought about by raising interest rates even if it does not change the general direction of curbing inflation and propose policies that are more in line with industry expectations.
From this point of view, the bankruptcy of SVB may provide an opportunity to solve the hidden dangers buried in the ups and downs of the US financial technology industry in the past three years. But everyone knows that changes are just adjustments based on the status quo, and risks in the financial industry can never be avoided.
In any case, SVB and the American science and technology circle will face labor pain, and some companies are destined not to survive this spring.