Since principal investor Bill Ackman requested a bailout from the United States (US) Government on March 10, the US-based Silicon Valley Bank (SVB) is in trouble. Bill used social media to contact the government with this proposal. It may be a significant setback for newly founded tech enterprises as many of them were funded by the SVB.
“The fall of SVB Financial might kill a major long-term driver of the economy as VC-backed enterprises rely on SVB for loans and keeping their operating funds,” Bill tweeted on his official Twitter account. If private capital is unable to solve the problem, a heavily diluted government-preferred bailout should be taken into consideration.
The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.
— Bill Ackman (@BillAckman) March 10, 2023
The bank’s situation in the US market is not good, and Bill went on to say that no banks are coming up to assist them in what is referred to be their biggest fallout.
The government might also guarantee deposits in exchange for the issuance of dilutive warrants and other covenants and protections, Bill continued. This would afford SVB Financial Group some time to reclaim the franchise and raise fresh private funds if SVB Financial Group is genuinely solvent.
The gov’t could also guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections. If @SVB_Financial is indeed solvent, this would buy time to enable SVB to restore the franchise and raise new private capital.
— Bill Ackman (@BillAckman) March 10, 2023
The bailout plan would serve the interests of depositors rather than those of the bank’s “bad” management and equity holders, he claimed, and he framed this bailout request as being for investors rather than the bank.
American billionaire and hedge fund manager William Albert Ackman founded and serves as the CEO of the hedge fund management firm Pershing Square Capital Management. He is regarded as a serious investor. Ackman’s net worth was pegged by Forbes as $3.4 billion as of 2023.
Bill’s open criticism of the Adani group during the controversy over the Hindenberg research report resulted in the loss of investor funds of 10 lakh crores. He somehow became the “Financial Guru” of the Indian market back then. But, in contrast to his strategy in India, he bowed before the US Government when it came to the SVB.
The SVB Mishap
Shares of SVB, a key lender to technology startups, sank as much as 60 per cent at the close on March 9. The same day SVB Chief Executive Officer (CEO) Greg Becker made a statement about the bank’s financial position, recommending customers to ‘stay calm’.
Uday Kotak, CEO at Kotak Mahindra also Tweeted on the crisis that erupted overnight at SVB and wrote, “Overnight developments in US banking: markets, analysts, investors underestimate the importance of financial stability for the balance sheet of a bank. When interest rates move up 500 bps from zero in a year, an accident was waiting to happen somewhere,”
Overnight developments in US banking: markets, analysts, investors underestimate the importance of financial stability for the balance sheet of a bank. When interest rates move up 500 bps from zero in a year, an accident was waiting to happen somewhere.
— Uday Kotak (@udaykotak) March 10, 2023
According to a Bloomberg article, 44 per cent of US venture capital-backed technology and healthcare companies that went public last year and nearly half of all US venture capital-backed startups do business with SVB. The market has been hard-hit by the quick change in interest rates, which is why banks like SVB are in danger of failing.
The US interest rate has increased over the previous few years to 4.5 per cent, the highest level since 2007. This has caused prices to rise at the quickest rate in decades.
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