Silicon Valley Bank (SVB) or the go-to bank for US tech startups suddenly collapsed last Friday, with US$200 billion in bank deposits now stranded. Its failure marks the second-largest banking collapse in US history.
About Silicon Valley Bank
SVB was the 16th largest bank in the US. SVB was a key banking partner to the venture capital, private equity, and technology sectors, and its collapse has threatened to leave thousands of technology companies unable to access their funds.
What are US Authorities doing to help?
To avoid contagion risks and alleviate further stress in the US banking system, the US Federal Reserve, Treasury, and US Federal Deposit Insurance Corporation (FDIC) confirmed that all depositors will be fully protected and will have access to their deposits effective from yesterday.
These safeguarding measures have also been extended to other US banks to ensure that depositors do not panic and withdraw their money from the banks, which could then cause a similar outcome to that of SVB. Shareholders and certain unsecured debtholders of SVP or any other banks will not be protected, and the regulatory authorities are not ‘bailing out’ SVB, so no losses will be borne by the taxpayer.
What does this mean Morrows Private Wealth clients?
The MPW Investment Committee has been liaising with our various fund managers to confirm the extent of any exposure they may have had to SVB. From what we are being told, none of our underlying managed funds had any direct exposure to SVB.
That said, some of our Private Equity and Venture Capital Funds are invested in portfolio companies that did have a banking relationship with SVB, and whilst the situation has caused some disruption, all companies are expecting to receive their deposits back in full this week.
On this basis, we believe that the collapse of SVB will have a minimal direct impact on our investment portfolios.
What does this mean for the global investment markets?
- Markets will remain volatile: Market volatility has risen substantially in the last week and we expect this to continue as the repercussions of SVB continue to play out.
- Interest Rates Rises may ease: The market was already jittery heading into the US Federal Reserve’s interest rate decision next week, and futures markets are now pricing in a much lower probability that the Federal Government will raise interest rates as it may potentially ‘spook’ markets even more. US inflation data is released tonight and if this comes in stronger than expected then the Fed’s hand may be forced. The European Central Bank (ECB) was also expected to lift interest rates by 0.5% this week, so we will see how the current market turmoil impacts their decision now. Will the rhetoric of ‘fight inflation at all costs’ change to rate hikes being put on hold to return stability to markets?
How can Morrows help?
In short, we expect volatility to remain elevated in the coming weeks and we will continue to keep you abreast of changes. In the meantime, if you have any questions on how it affects your investment portfolio and strategies, please contact your Morrows Private Wealth advisor.