They’re calling them woke for having implemented DEI policies. These are only really in place to improve on their ESG ratings so they have access to more investor money. Being “woke” here is purely a product of capitalism
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No deposit insurance issue in Canada for SVB. It doesn’t take deposits from Canadians.
SVB only had US$692-million in assets and US$349-million in outstanding loans in Canada as of December, 2022 according to filings with the Office of the Superintendent of Financial Institutions. That’s a fraction of the tech loan portfolios at major Canadian banks. In comparison, the major Canadian banks have in excess of $1 trillion in assets.
However, SVB is a major provider of U.S. bank services to the American operations of Canadian tech companies, and to U.S. businesses that have investments from Canadian fund managers. This could be the biggest impact for Canadian companies.
It is fair to ask this question. You might find interesting the opinion piece below from yesterday’s Globe and Mail.
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I saw someone (edit: Mark Cuban) suggest that the Fed purchase the distressed assets of SVB and hold them to maturity because the majority of the distressed assets are distressed because of the Fed raising interest rates.
I’m not sure that would be any better than what they are doing, since who is it that ultimately pays the higher insurance rates on deposits charged by the FDIC?
Interesting article in Forbes. Hopefully you can click the link. They had 42B in withdrawals after they announced their 2.25B cash raise? WOW.
Silicon Valley Bank Proxy Shows Board’s Secret Yearlong Risk Panic (forbes.com)
Silicon Valley Bank Proxy Shows Board’s Secret Yearlong Risk Panic
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I write about essential business insight in a tech-driven world.
Mar 12, 2023,09:15am EDT 6:41 0:00
Silicon Valley Bank shocked investors and depositors last week by announcing a $2.25 billion capital raise to stabilize its balance sheet. The next day, its primarily venture capital tech customer base hurriedly withdrew a staggering $42 billion of cash deposits, leaving SVB in a negative liquidity position – not tenable for a bank.
Summary
As the news broke, pundits quickly pointed to the typical financial institution demise culprits – overly aggressive investments, interest rate spike quicksand, convoluted accounting and toothless regulators. While all likely contributed to SVB’s downfall, a closer look at its SEC filings reveals a massive risk management rhetoric-reality gap.
The sudden freefall is likely not a surprise to the SVB board. In the past 15 months, as top insiders cashed options and sold shares, SVB operated without a full-time chief risk officer and the number of board risk committee meetings more than doubled.
The board now faces the classic Watergate questions — what did they know and when did they know it? Their 2023 proxy holds some initial clues of a silent panic.
Empty chairs
Above and beyond pay intrigue, proxy statements reveal much about corporate governance, oversight and priorities. For instance, the word “risk” appears 192 times in SVB’s 2023 proxy filing. That number’s high, but not surprising – it’s a bank that primarily concentrates on serving the volatile tech venture market.
Beyond the perfunctory risk verbiage, three disclosures show that risk clearly became a skyrocketing concern for the SVB board over the past year.
· Its 2023 proxy statement filing calls for seven of its eleven board members to serve on its risk committee, while no other committee consists of more than five directors. Its 2022 filing showed only six members on the committee with, oddly, no chair. Intriguingly, the risk committee excludes its most qualified director — Thomas King, a former Barclays investment banking CEO, who joined SVB’s board in 2022. He ostensibly has far greater substantive financial services experience than the committee comprised of a Napa vineyard owner, a retired healthcare CIO, a former U.S. Treasury undersecretary, venture capital partners and consulting firm heads.
· The risk committee met an unusually high 18 times in 2022. That’s an average of 1.5 times per month and more than twice the seven meetings held in 2021. The disclosure does not indicate if the meetings were timed evenly throughout the year or accelerated as financial woes worsened over time.
· Perhaps most troubling is that it seems SVB astonishingly operated much of 2022 without a chief risk officer. On January 4, 2023, SVB announced the hiring of Kim Olson as its CRO. The subsequently-released 2023 proxy statement filed in March reveals that SVB “initiated discussions with [Laura] Izurieta about a transition from the chief risk officer position in early 2022. Accordingly, the Company and Ms. Izurieta entered into a separation (without cause) agreement pursuant to which she ceased serving in her role as Chief Risk Officer as of April 29, 2022 and moved into a non-executive role focused on certain transition-related duties until October 1, 2022.” Did the risk committee think 18 meetings equate to a collective de facto CRO?
Such turmoil was no match for rising rates, portfolio strain and cash adequacy aims.
Road to ruin
The repeated interest rate hikes over the past year have dented bond portfolio values. Many banks, including SVB, designate such investments as “hold-to-maturity” which allows them to avoid “mark-to-market” accounting and conceal unrealized losses.
Such background bookkeeping machinations only come to light when high growth ventures face tepid IPO markets and must draw on deposits. Their cash needs force poorly-capitalized banks to sell loss-laden holdings to generate sufficient liquidity.
Undoubtedly, such valuation woes may have placed SVB in momentary paper default positions throughout the year. The board and c-suite likely hoped, against market forces, for stabilization of their high-risk business model. The eventual March 2023 capital raise announcement ended the financial stagecraft and triggered the collapse. Simply put, SVB leadership failed its fundamental stewardship responsibilities.
Exactly what was known and when it was known will come to light in time. As all is investigated, legitimate questions also swirl about CEO Greg Becker selling $3.6 million of SVB stock just days before the proxy filing and capital raise disclosure. Other insider trades show the current CFO and CMO selling shares too. What did these executives and others anticipate? When did the insider selling really begin?
According to CNBC, employee bonuses were paid hours before the FDIC seized control of SVB — the same Friday depositors were pressed to make standard payrolls. On that day, CEO Greg Becker abdicated accountability in a two-minute video to employees claiming “he no longer made decisions at the 40-year-old bank.”
More details will emerge and countless inevitable scathing questions will forge forthcoming litigation discovery, congressional hearings and regulator inquiries.
When was the leadership team aware of the bank’s impending peril? Did internal and external auditors sound alarms about valuation, liquidity and solvency? Did the long-serving CEO exercise undue sway over the board’s purported independent decisions? Did millions in bonus compensation, lucrative stock options and tech power circle elbow-rubbing make all of the above moot? Surely, there must be detailed board and committee minutes. If not, one of the many directors past retirement age will talk.
Plain View
Too often proxy statements are viewed as mundane, boilerplate regulatory filings to rubber-stamp c-suite pay and director renewal. These under-appreciated documents provide great insight into whether capable and courageous leadership is fit for what business complexity demands. Read insightfully and instinctively, they reveal much.
Unfortunately, calamities like the SVB collapse jeopardize financial markets and disclosure lags leave more questions than answers. As a minimum, boards in all sectors must boldly ask if their risk management approach is real or rhetoric.
After all, who’s ultimately responsible for what must go right?
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And if you think your bank could handle that, I would think again.
My sister’s boss posted to Twitter a few days ago, people did not take kindly to her post and blasted her all over Reddit. She is ex-McKinsey, and she and her husband made good money (similar to what many of us make), her husband still makes good money while she has taken a large pay cut to start this company.
I do not know this woman, but my sister is one of the people she mentions who just bought a house and makes far less than she could make elsewhere because she has a passion for her work. She’s one of less than 20 employees, and works really hard for a cause she believes in.
I was at dinner last night with my sister when her boss texted her the good news. My sister is just happy to be able to pay her mortgage this month and have a job to return to, and it’s disheartening to read randos on Reddit gleefully bashing her as “rich and entitled.” People suck.
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Is this the woman who runs a business that helps sort of organize your life? I was reading about that one, I think she did a few posts on Twitter about her life including that she drives a used Honda Odyssey and I was like that’s what I drive!!
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Yep, that’s her.
Also, my sister was on tv! This is a photo of some of her colleagues, she’s one of the people in the pic.
I’ll stop mentioning it now, I’m glad to see it worked out well for her and others like her.
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That’s the point I’m making though. People invest in stocks that have never aligned with traditional valuation formulas. Stocks prices are unpredictable because of human behavior, not because of real valuation, so coming from that angle is kind of moot. Call it investing or gambling is just semantics. Dividends for the most part is not why people buy stocks.
Their balance sheet was incredibly mismanaged well prior to 2022.
Lots of evidence out there that SVB wasn’t managing interest rate risk at a reasonable level.
SVB UK just got bought for £1 by HSBC.
Having some nostalgic memories of Nick Leeson and Barings Bank.
HSBC buys Silicon Valley Bank’s UK unit for £1 in rescue deal - https://on.ft.com/3T9SfrA via @FT
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Silicon Valley venture capitalists are pretty right wing as a group and believe in brutal capitalism, low taxes and no government intervention. Accordingly they should be speaking out against raising the FDIC rates to bail out SVB depositors because of their ideology ? 
Always galling to see business groups railing against government intervention until it benefits them. Silicon Valley VC’s not unique in this regard, of course.
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Socialism for me, not for thee.
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Mistake #1.
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This is what gets me upset for 2 reasons.
- You have people who cry foul anytime someone mentions govt helping people out about creating a welfare state and now these same people are asking for bailouts.
- The democrats were wagging their fingers at the republicans for 2008 for providing bailouts to the banks and now when faced with a similar challenge they are bailing everyone out too
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So it turns out that TBTF is smaller than “big enough to tightly regulate.”
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My point is that even the most well managed bank is going to have problems if demands to withdraw 42 billion show up at their door in a 2 day timeframe. In the case of SVB that was a quarter of their deposit base.
Okay, that is a really odd vacuum to look at things in.
Ignore the entire situation that they created for themselves, and just focus on the response to the last item in a chain of events.
That is like saying that “no insurance company could survive if half their homes were hit by a hurricane,” but ignoring that they only wrote coastal risks in Florida.
Yeah, no company could survive that, but most companies do not expose themselves to such a ludicrous concentration of risk.
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