‘Government has about 48 hours to fix a soon-to-be-irreversible mistake’: Bill Ackman warns some companies may not be able to meet their payroll after SVB fails

The government has about 48 hours to fix a bug that will soon be irreversible. With SVB Financial failing without protecting all depositors, the world has become aware of what an uninsured deposit is – an unsecured, illiquid claim on a failing bank. If JPMorgan or Citi or Bank of America doesn’t take over SVB before Monday’s opening, a prospect I think is unlikely, or the government guarantees all of SVB’s deposits, the huge sucking noise you’re about to hear will be the withdrawal of essentially all uninsured deposits are all but the “systemically important banks” (SIBs).

– Bill Ackman, CEO of Pershing Square Capital Management

The collapse of the Silicon Valley bank on Friday has left some start-up companies scrambling to pay their workers and wondering whether they will be forced to lay off employees if money held by the bank is frozen or not get lost.

Big companies like connected TV provider Roku and video game maker Roblox have warned investors that they have deposited hundreds of millions in cash with Silicon Valley Bank that may be at risk.

See: Roku says it “doesn’t know” how much of its money it can get back from SVB

“Already, thousands of the fastest growing, most innovative venture-backed companies in the US will be without payrolls starting next week.” Ackman said in a lonG tweet on Saturday.

According to its website, Silicon Valley Bank has had relationships with more than half of the venture capitalized companies in the United States. If the bank isn’t bailed out quickly, the fallout could be dire for many startups and the broader tech scene, said Garry Tan, chief executive officer of Y Combinator, one of Silicon Valley’s top startup incubators.

See: The collapse of Silicon Valley Bank is an extinction-level event for startups, says Y Combinator’s Garry Tan

While the Federal Deposit Insurance Corporation (FDIC) took over the bank, known for lending to startups but also providing private banking with mortgages and other services, deposits are only insured up to $250,000. The assets of the bank amounted to more than 200 billion dollars. Around $42 billion was withdrawn from the bank on Thursday alone. according to the California Department of Financial Protection and Innovation.

Silicon Valley Bank was shut down and a reception appointed by California’s Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation (FDIC) on Friday. The bank was the first FDIC-backed entity to fail that year.

See: Silicon Valley Bank branches have been shut down by regulators in the biggest bank collapse since Washington Mutual

The FDIC said Silicon Valley Bank had total assets of about $209 billion and total deposits of about $175.4 billion at the end of December, but it’s unclear how much the bank has on its balance sheet now. Depositors could withdraw up to $250,000 Monday, the FDIC said. A hotline number has been provided for those who deposited more to call.

“My review of the SVB balance sheet on the back of the cover suggests that even with liquidation, depositors should eventually recover about 98% of their deposits, but ultimately when you have a paycheck next week, it’s too long,” Ackman said . “So even without assigning a franchise value to the SVB, the cost of a government guarantee for SVB deposits would be minimal.”

As US regulators search for a buyer for what remains of SVB Financial Group, they will work to find a buyer for SVB’s commercial banking operations, an asset unit, an investment bank and a fund manager. Bloomberg reports Saturday.

Still, the FDIC statement on Friday did not indicate a likely quick sale of the entire company. The regulator said it will pay an advance dividend to uninsured depositors within the next week, with future payments potentially coming if assets are sold.

https://www.marketwatch.com/story/the-government-has-about-48-hours-to-fix-a-soon-to-be-irreversible-mistake-bill-ackman-warns-some-businesses-may-not-be-able-to-meet-payroll-after-svbs-failure-1cb2e6d9?siteid=yhoof2&yptr=yahoo ‘Government has about 48 hours to fix a soon-to-be-irreversible mistake’: Bill Ackman warns some companies may not be able to meet their payroll after SVB fails

Russell Falcon

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