UT OF COMMON
/ Do not write mediocre stories /
Financial risks are never avoided
Text/He Yiran
Editor/Wang Fangjie
In just a few days, the collapse of the Silicon Valley Bank (SVB) began to spread, causing the biggest crisis in the US financial market after the subprime mortgage crisis. At least in this case, Silicon Valley Bank achieved Silicon Valley speed, as its name suggests.
On March 9, local time, SVB, the sixteenth largest bank in the United States focusing on PE/VC and technology-based corporate financing, announced that it would sell securities worth about $21 billion and admitted that the transaction would cause a loss of about $1.8 billion.
A large number of SVB customers began to queue up at the bank door to withdraw money, so that within 14 hours, the withdrawal amount requested by customers reached $42 billion, directly causing SVB's cash account to run short.
On the evening of the next day, Silicon Valley Bank directly announced that it had entered bankruptcy liquidation procedures.
The sudden catastrophe became a depth bomb dropped on Wall Street and the global financial community last weekend, and everyone in the world was worried about the future, fearing that the 2008 subprime mortgage crisis would be repeated.
Because many of them will think at this moment that this crisis triggered by liquidity has actually planted the grass gray snake line more than half a year ago.
In September 2022, just like the Silicon Valley Bank, Credit Suisse suddenly announced the sale of its trust business, knowing that Credit Suisse's trust business has been very stable and is a very high-quality business within it. Credit Suisse will not sell unless forced to.
Indeed, at that time, Credit Suisse's liquidity was being tested, in large part because the value of various assets plummeted under the pressure of the Fed's interest rate hikes, and in an environment of high interest rates, the investment banking business on which Credit Suisse relied plummeted.
Similarly, the root cause of the crisis of the Silicon Valley Bank is also the transformation of the Fed's monetary policy, from interest rate cuts to interest rate hikes, although it is an inevitable process, but too hasty, will also lead to increased market liquidity risks.
If the crisis is different from 2008, the biggest point is that the subprime mortgage crisis was triggered by the two-house crisis, and the first to be affected was the real estate and financial industries in the United States, and related industries that can be traced back to its industrial chain.
And, as the subprime mortgage crisis became a global financial crisis, the Fed instituted a series of quantitative easing policies to ease the crisis, and although it was withdrawn a few years ago, it re-emerged during the pandemic. To a certain extent, this has also achieved more than ten years of Silicon Valley innovation and entrepreneurship.
But this time, the trigger is triggered by SVB, known as the "financial partner of the innovation economy," which has long focused on serving innovative, high-growth and high-risk high-tech industries.
According to statistics, SVB has served more than 30,000 startups, 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. In a way, SVB can be seen as one of the weather vanes and barometers of Silicon Valley.
Therefore, the SVB crisis will be directly transmitted to the entire U.S. innovation market, from the liquidity risk of banks to the liquidity risk of enterprises.
These startups, fed by direct financing, will realize that liquidity risk is "the elephant in the room" for any industry. ”
01
One stone stirred up a thousand waves, and the collapse of SVB caused a series of chain reactions in the technology circle.
The latest news is that the US government has announced that all SVB depositors can get their deposits back from the 13th, and the loss will not be borne by taxpayers. But users are still anxiously lining up at SVB's door, waiting for their funds to be cashed out.
Public information at the end of 2022 shows that SVB has about $209 billion in assets and $175.4 billion in deposits, and SVB has no retail business, and its customers are all enterprises, so in fact, most of the people at risk are start-ups.
For these companies, cash flow itself is not abundant, even a one-month liquidity crisis is enough to make the company face closure.
Garry Tan, CEO of Y combinator, a well-known startup incubator, predicts that the SVB thunderstorm may affect thousands of start-ups, and a third of them will be unable to pay salaries in the next month due to the freezing of funds, which is a "disaster" for start-ups.
Many companies have blown up their own situation to avoid higher risks.
Cryptocurrency company Circle tweeted that it holds $3.3 billion in SVB, but stressed that there is still $40 billion in reserves; Streaming hardware service Roku says 26% of its cash reserves are held in SVB, and most of them are uninsured; Roblox, the "first stock in the metaverse", said that about $150 million in cash was hit by the SVB crash...
Chinese Internet companies on the other side of the ocean have also been affected.
Years ago, Meituan founder Wang Xing posted screenshots of accounts linked to SVB, showing more than $60 million. After the news of SVB's bankruptcy broke, screenshots of Wang Xing's conversation about wanting to defend his rights were circulated. Perhaps because the news is getting more and more true, Meituan officials came forward to deny it, and said that the company no longer has an account in SVB.
In addition, Pan Shiyi, who is rumored to have more than 100 million deposits in SVB, also responded on Weibo: "We have never opened an account with a Silicon Valley bank and have never deposited money. ”
Meanwhile, SVB CEO Greg Becker sold about $3.6 million worth of shares in the company in February, a move that was under scrutiny. It is believed that management had anticipated the risk of a run, but did not expect it to be so out of control after the disclosure.
At present, a number of small and medium-sized enterprises with accounts with SVB have started self-help measures.
According to US media reports, some depositors are selling their deposits in SVB at a large discount to raise cash and solve the urgent need. On the trading platform Cherokee Acquisition, SVB deposits that are not covered by insurance are quoted at a discount between 5% and 6%.
SVB's run shows how much Silicon Valley is right now. After a difficult 2022, financing in the technology industry has become more and more difficult, and entrepreneurs no longer have the original relaxed geek temperament, and need a sense of security under control.
But on the other hand, the pervasive depression has also aroused a stronger sense of solidarity in the US financial and technology industries, which do not want to repeat a "Lehman moment" in Silicon Valley and the mistakes of the Internet bubble at the beginning of the century.
Controlling developments and weakening the sphere of influence has almost become the consensus of Silicon Valley and Wall Street.
According to sources, the heads of a number of 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, the investment agency praised SVB's important role over the past four decades, calling it "an important platform for the U.S. startup industry and supporting the innovation economy" and that the events at SVB in the past few days are "deeply disappointing and worrying." The institutions announced that if SVB is acquired by another entity, investors will continue to maintain a commercial relationship with SVB.
Startup incubator Y Combinator also led a petition signed by hundreds of entrepreneurs calling on U.S. Treasury Secretary Janet Yellen and other regulators to step in on SVB bankruptcy, calling for "mitigation and attention to the immediate and significant impact on small businesses, startups and employees of companies with deposits in SVB," and imploring Congress to "restore stronger regulatory and capital requirements for regional banks."
Musk, who is always surfing on the front line of the Internet, will naturally not let go of this hot spot. In response to Razer CEO Chen Minliang's tweet "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 achieved annual profits of $1.294 billion, $2.073 billion and $1.609 billion, respectively. Therefore, the fundamental reason why SVB can get the support of the industry is that it is itself an "excellent student" in the banking industry, and the industry also recognizes that the thunderstorm is not a problem with SVB's business model, but an investment and decision-making error, and even many institutions will point the finger at the Federal Reserve.
In the eighties of last century, it was difficult for science and technology enterprises lacking physical fixed assets and intangible assets such as intellectual property to obtain enough loans from established banking giants, and the founding team of SVB seized this pain point and rode the east wind of the Internet revolution to lay a world.
In short, SVB follows venture capital institutions and becomes a bridge between venture capital and technology start-ups. After a startup receives venture capital, SVB approves a credit line based on a certain percentage, while taking deposits from venture capital institutions and technology companies. Because there is no collateral, SVB usually asks borrowers for warrants of 3-5% and attaches low-interest deposit requirements to loan conditions to achieve "high interest margins".
Internet technology companies have created countless wealth myths in the past two decades of rapid development, and SVB has also benefited a lot from it. This set of "investment-loan linkage" model verified by the US science and technology innovation circle has also been imitated by countries around the world in the wave of science and technology entrepreneurship in the past decade.
After the outbreak of the new crown epidemic in 2020, the stay-at-home economy drove the market value of Internet companies to soar. The Federal Reserve's aggressive quantitative easing and commitment to zero interest rates for a long time have ushered in a new wave of financing for the global technology sector.
Silicon Valley tech startups have made it extremely easy to get financing, and a lot of money has poured into SVB. According to statistics, SVB's total deposits soared from $76 billion to $190 billion.
After the deposit growth, SVB chose to invest in relatively safe fixed income assets Treasury and mortgage-backed securities (MBS) because the Fed's benchmark interest rate was at a low point and profit margins were very limited. SVB's MBS holdings grew by nearly $80 billion a year, 97% of which are over 10 years, with an average annual yield of 1.5%.
SVB won't have any problems if the tech industry stays at a high pace, but the industry's sharp turn is instantaneous.
In 2022, the US technology circle has been hit hard, the stock prices of giants have plummeted, and financing has become extremely difficult. In order to maintain normal R&D and operation, start-ups can only consume bank deposits. At the same time, the Fed has raised interest rates eight times since March 2022, increasing the interest rate from 0.25% to 4.75%, and MBS, with an annual return of 1.5%, is very little value for money in comparison.
In order to ensure the liquidity of funds, SVB had to sell its MBS bonds at a loss in the event of a mismatch between assets and liabilities, and chose to announce this news. The influx of science and technology start-up companies and venture capital institutions, which are already frightened birds, has made the situation get out of control.
In the view of analysts, the SVB incident is an accidental event under the superposition of multiple factors, and it is unlikely to be transmitted to the entire industry.
To some extent, SVB's thunderstorm has stimulated risk aversion in the industry, reducing the probability of a run in the near future. The Fed sees the SVB turmoil, even if it does not change the general direction of curbing inflation, it may make a new judgment on the financial risks brought about by interest rate hikes and give policies that are more in line with the expectations of the industry.
In this way, SVB's bankruptcy may provide an opportunity to solve the hidden dangers buried by the ups and downs of the US fintech industry in the past three years. But everyone also knows that change is just an adjustment 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 innovation circle will face a pain, and some companies are destined to not survive this spring.