About Silicon Valley, it can be put in the history books: the most famous bank established 40 years ago had to be saved by someone else because of serious damage to itself, or it could be a big bank or risk going. A fire in one day.
We don’t yet know who that “white knight” will be, but you can imagine there’s a lot of discussion about who will step in and buy Silicon Valley Bank, whose stock is about 60 percent below its current level. They were there early yesterday. And why? Not because the bank is bursting at the seams. Instead, because it absolutely resonated with some important message at the worst time imaginable.
This, friends, is called his own goal.
In case you’re catching up, here’s what happened: Silicon Valley Bank lost $1.8 billion on the sale of U.S. Treasuries and mortgage-backed securities it invested in as interest rates rose. As the bank’s mostly startup customer base now has much less money to park in the financial institution, customer deposits tend to dwindle.
Since he is in this position, he decides to raise a lot of money to protect his business. The plan was to sell $1.25 billion of common stock to investors, $500 million in convertible preferred stock and $500 million of common stock in a separate transaction to private equity firm General Atlantic. The obvious goal was that the bank is conservative and to stabilize itself by raising this money.
Oh, how it came back, though, and who might be surprised, the announcement came just as crypto bank Silvergate was winding down its operations.
Someone at a Silicon Valley bank might pause and think, “Hmm, maybe today isn’t the right time to announce that we’re increasing our balance sheet. They didn’t. Instead, at the end of the market, they put out a press release that was so vulnerable it almost sounded like a joke. Silicon Valley Bank is anything but a trusted financial partner for many startups and venture companies who are panicking about what to do now.
Also not laughing: Greg Baker, CEO of Silicon Valley Bank, found himself having to jump on a buzz call this morning to reassure his panicked customers, it’s a bit of a news release! But also, please just keep calm, because that’s what matters. “Your long-term backer, the venture capital community companies, and therefore us, the last thing you need to do is panic,” Baker said, which no one wants to hear from the head of their bank.
“It’s like the end of ‘Animal House,'” said one of the bank’s customers, who asked not to be named. Don’t panic? Now, I’m freaking out watching your broadcast.”
Here is the question. We reached out to General Atlantic to see if it still plans to invest $500 million in Silicon Valley Bank common stock.
We reached out to Silicon Valley Bank itself, which echoed Baker’s earlier talking points. Silicon Valley Bank is trying to “strengthen its financial position”. It is “well capitalized”, has a “high-quality, liquid balance sheet”, boasts “peer-leading capital ratios”, etc. etc.
Still, we’re betting a bank like Goldman Sachs will appear on the table, scoring the deal of a lifetime (and keeping Silicon Valley bankers from running for the exits). In the meantime, anyone working in investor relations may want to look for a new job.
The same could be true of Baker, who should have done more to expand the bank’s business – this has been an obvious issue for years – but the start-up economy that gave traders and financial funds a new way of doing business in the current recession.