Silicon Valley Bank shoots itself in the foot

It may go down in the history books of Silicon Valley: the time when their most prominent bank, a bank founded almost 40 years earlier, was injured so badly that it had to be rescued by another bank or was in danger of bursting into flames on a single one Day.

We don’t yet know who that “white knight” will be, but you can bet there’s a lot of talk going on right now about who will step in and take over Silicon Valley Bank, an institution whose shares have fallen more than 80% since -Hour trading from where they were yesterday’s start. And why? Not because the bank is crumbling at the seams. Instead, because it completely screwed up some important news at the worst possible time.

That, friends, is called an own goal.

If you’re catching up, here’s what happened: Silicon Valley Bank lost $1.8 billion selling US Treasuries and mortgage-backed securities it had invested in due to rising interest rates. The bank is also struggling with dwindling customer deposits, as its customer base, which consists mostly of startups, currently has far less money to park with a financial institution.

Because it is in this place, it has decided to raise a lot of money to secure its business. The plan called for selling $1.25 billion of its common stock to investors, $500 million in convertible preferred stock, and $500 million of its common stock to private equity firm General Atlantic in a separate transaction. The obvious goal was to project that the bank was conservative and was raising that money to stabilize itself.

Oh, but how it backfired, and who can be surprised considering it made its announcement about these plans just as crypto bank Silvergate announced it was going out of business.

One would imagine that someone at Silicon Valley Bank would have stopped and thought, “Hmm, maybe today isn’t the right time to say we’re bolstering our balance sheet.” Apparently, they didn’t. Instead, they issued a at the end of yesterday’s close confusing press release it was so bad it was almost comical. Aside from that, Silicon Valley Bank is a trusted financial partner for many startups and venture firms that are now nervously struggling to figure out what to do.

The story goes on

It’s certainly not funny for Silicon Valley Bank’s estimated 6,500 employees, or for its CEO Greg Becker, who had to pounce on a Zoom call late this morning to reassure panicked customers that it was just a small press release!

It wasn’t a convincing performance. “My only request is to keep calm, because that’s important,” Becker said to countless viewers who weren’t given the opportunity to ask questions. Silicon Valley Bank is a “longtime supporter of yours, the venture capital community firms, and the last thing we need from you is panic,” he added, saying what no one ever wants to hear from their bank’s boss .

One of those customers, who asked not to be named, told us afterwards: “It’s like the end of ‘House of Animals.’ No panic? Now I panic when I see your show.”

What happens from here is the question, and something has to happen fast given how fast the bank’s shares are falling. We reached out to General Atlantic to see if they still have plans to invest $500 million in Silicon Valley Bank’s common stock (we don’t have feedback yet).

We reached out to Silicon Valley Bank itself, which echoed Becker’s earlier arguments. Silicon Valley Bank was/was just trying to “strengthen its financial position.” It is “well capitalized”, has a “quality, liquid balance sheet”, boasts “top capital ratios”, etc. etc.

Again, our bet is for a bank like Goldman Sachs to come to the table, get the deal of a lifetime and stop Silicon Valley Bank employees from running for exit. We’ll know soon enough.

In the meantime, anyone working in investor relations should look for a new job.

Perhaps the same is true for Becker, who should have done more to diversify the bank’s business (this was an issue that has been hidden from view for years) and instead gave traders and hedge funds a new opportunity with the current decline the bank to act startup economy.

His only hope now is to convince the bank’s remaining customers that everything is fine and hope that they will buy it.

The window closes quickly. start-up fund and other companies They reportedly advised their portfolio companies to do so earlier today withdraw their money. Even VC’s express support because the bank must have done the same privately so that its portfolio companies do not risk losing their valuable capital.

“We have ample liquidity to support our customers, with one exception,” Becker said earlier on that Zoom call.

Then Becker, who sold one massive chunk of his own shares, recently added: “When everyone says SVB is in trouble, it will be a challenge.”