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

The stability of Silicon Valley Bank, whose $210 billion in assets make it the 16th largest US bank, rattled investors yesterday, sending them dumping the stock, which ended up down about 50 percent.

Image source: Pexels/Anna Nekrashevich

Is this a Lehman moment?

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

But for the hundreds of fintech and other startups and scaleups that are customers and partners of Silicon Valley Bank, the rapid drop in the share price is more than cause for concern.

The stability of the bank, whose $210 billion in assets make it the 16th largest US bank, rattled investors yesterday, sending them dumping the stock, which ended down about 50 percent.

Pre-market trading means the stock is down 79 percent, according to Bloomberg, in less than 24 hours. These things don’t happen that often with blue-chip names like SVB.

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

The problems stem from SVB announcing a $2.25 billion share sale to cover losses and, Taylor adds, its customers’ deposit base declining as “the tech correction bites.”

“Imagine losing 11 percent of your income and seeing your costs increase by 9 percent. SVB lost 11 percent of deposits in a single year. It is massive because deposits finance all lending activity. As interest rates rise, the cost of holding those deposits has increased (think the tax on income for a bank). As interest rates rise, so has the cost they pay for the bonds, he said.

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

“The only way out SVB had was to sell equity (more shares) to cover the losses. The move has spooked the market because SVB is historically a very well-run bank and has the market concerned about exposures other smaller banks may have to the technology sector with Bancorp shares falling 20% ​​over the same period, Taylor said.

Although not a household name, SVB is one of the most important nodes in the fintech and wider technology world with a large European operation based in London.

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

The bank has also invested directly in many well-known names, typically through debt financing. Perhaps most notably a new £300m syndicated debt facility for Wise in October 2022.

For entrepreneurs and VCs, the concerns are clear. SVB is both an important source of capital and where they have their cash.

But the reality is whether the crisis can be resolved quickly or whether it is actually another “Lehman moment” is unclear.

Wise and SVB were contacted for comment on this article.