The 16th largest US bank has collapsed, but the impact on your portfolio could be limited depending on your holdings.
The Silicon Valley bank, or the go-to place for US tech startups, suddenly collapsed within 48 hours on Friday, with $200 billion in bank deposits now stranded.
On Monday, regulators shut down the California-based bank in the biggest meltdown by a US bank since the global financial crisis of 2008.
And while the bank is fairly large and its customers are trying to get their money, unless you own a large number of US tech stocks, the impact on investors could be fairly limited.
For Australian investors, Assistant Treasurer Stephen Jones is forecasting a fairly mild fallout.
“Our first piece of advice is that the impact of the first round on Australians and Australian companies is very limited – I wouldn’t say negligible, but very, very limited,” Jones said at a financial services event.
Why did the bank collapse?
In short, SVB’s problems stemmed from some investments backfiring and a classic bank run ensuing.
The company lent money to venture capital that went awry.
On Wednesday, the SBV came out and said it had to sell a number of bonds.
But the bonds they sold were worth less than they paid for. This is because they had long-term assets that are worth less in a world of rising interest rates.
Its $21 billion bond portfolio reportedly returned 1.79%, but current 10 yields are up about 3.9%.
As in most of these situations, this resulted in depositors getting scared and trying to withdraw their money, and the bank suddenly collapsed.
The bank collapsed on Friday.
The bank’s shares fell 66% and Financial Protect and Innovation closed the bank. The Federal Deposit Insurance Corporation (FDIC) stepped in as receiver.
US regulators save customers
As fears of contagion spread, the FDIC said it would pay $250,000 to each depositor by Monday at the latest as it instituted receivership to liquidate the bank’s assets.
The FDIC says it plans to advance depositors more money later in the week.
As it stands right now, the FDIC is keeping all of Silicon Valley Bank’s assets along with those that have a loan that is expected to make payments as usual.
Which ASX investments are affected?
Although our Assistant Treasurer has concluded that there is minimal impact on Australian businesses and the broader economy, some businesses have said they will be affected by the banking collapse.
These are all companies located in the technology sector. Those affected include:
- Life360 – Stuck at $5.6 million but not expecting any significant disruptions to operations
- Nitro Software – has $12.18 million in global cash reserves.
- Redbubble – Exposed at $1.3 million but has another $97 million out of the bank
- Sezzle – The buy-now-pay-later company has $1.3 million in SVB. But has $68 million in other financial institutions.
- Siteminder – The company transferred some of its money on Friday, but told the market it still holds up to A$10 million in SVB.
- Xero – The accounting service provider has up to $5 million in the bank
- Whispir – Whispir has a small exposure to SVB with currently $173,679 tied to the bank
This is only a preliminary list based on company announcements, more news awaited.
What about US investors?
For those who buy US stocks or exchange-traded funds (ETFs), your exposure is slightly larger.
While it’s important to highlight that this is the 16th largest bank, while some of the big FAANG stocks have had exposure, they also have funds at other banks.
Most notably, Roku, which has 26% of its funds tied up in SVB, will be affected. Additionally, well-known stocks like Etsy, NVIDIA, Hubspot, and Square are believed to have some exposure.
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