‘The government has about 48 hours to fix a soon-to-be-irreversible mistake’: Hedge-fund titan Bill Ackman warns some businesses may not be able to meet payroll in wake of SVB’s failure

“By allowing SVB Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is – an unsecured illegal claim on a failed bank. Absent JP Morgan JPM,
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or City C,
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or Bank of America BAC,
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A takeover of SVB before it opens on Monday, a possibility I believe is unlikely, or the government guaranteeing all deposits of SVB, that huge sucking sound you will hear, all from ‘systemically important banks’ Substantially all uninsured deposits will be returned. ,

The sudden collapse of the bank into receivership, a unit of SVB Financial Group SIVB,
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Some startup businesses have been left scrambling to make payroll and wondering if they will be forced to lay off employees if bank-held funds are frozen or lost.

Big companies like TV provider Roku ROKU,
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and videogame maker Roblox RBLX,
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cautioned investors that they have hundreds of millions of dollars in cash in Silicon Valley banks that could suddenly be in trouble.

Roku says it has ‘no idea’ how much cash it will be able to recover from SVB

“Already thousands of the fastest growing, most innovative venture-backed companies in America will begin failing to make payroll next week,” Ackman said in his long tweet on Saturday.

According to the Silicon Valley Bank website, it had relationships with more than half of the venture-capital-backed companies in the United States. If the bank doesn’t come to a quick rescue, the consequences could be dire for many startups and the broader tech landscape, said Gary Tan, chief executive of notable Silicon Valley startup incubator Y Combinator.

Silicon Valley bank failure is extinction-level event for startups, says Y Combinator’s Gary Tan

While the Federal Deposit Insurance Corporation, or FDIC, took over the bank, which is known for lending to startups but also engages in private banking, providing mortgages and other financial services, deposits are only insured up to $250,000. Is. The bank’s total assets exceeded $200 billion. About $ 42 billion was withdrawn from the bank on Thursday alone. According to the California Department of Financial Protection and Innovation,

The Silicon Valley bank was shut down by the state agency and the FDIC on Friday, suspending trading in SVB Financial’s shares after Thursday’s sharp decline and Friday’s pre-market action.

The bank became the first FDIC-backed institution to fail this year as well as, reportedly, the second largest failure on record.

Silicon Valley bank branches shut down by regulator in biggest bank failure since Washington Mutual

The FDIC said the Silicon Valley bank had about $209 billion in total assets and about $175.4 billion in total deposits as of the end of December, but it was unclear how much was on the bank’s balance sheet as of Friday. The FDIC said deposit holders would be able to withdraw up to $250,000 on Monday. For those with deposits above this amount, the FDIC provided a hotline number to call.

Ekman said, “My back-of-the-envelope review of SVB’s balance sheet shows that even in a liquidation, depositors should eventually get back about 98% of their deposits, but that ultimately is too long when You have your parole due next week.” “So even without assigning any franchise value to the SVB, the cost of the government’s guarantee of the SVB deposits would be minimal.”

As US regulators look for a buyer for the remnants of SVB Financial Group, they will work to find a buyer for SVB’s commercial-banking operations, a wealth unit, an investment bank and a fund manager. Bloomberg reported on Saturday.

Still, the FDIC statement on Friday did not indicate a possible quick sale of the entire company. The regulator said it will issue an advance dividend to uninsured depositors within the next week along with future payments, probably coming in the form of asset sales.