The blame game is on for who caused Silicon Valley Bank’s collapse, and the tech sector is pointing the finger at SVB CEO Greg Becker for allowing his company to go down in history as the second-biggest US banking failure on record.
One Silicon Valley Bank employee, who requested anonymity to speak candidly, was dumbfounded by how Becker publicly acknowledged the extent of the bank’s financial troubles before privately lining up the necessary financial support to ride out the storm.
This set the stage for the panic that ensued as customers scrambled to pull their money.
“That was absolutely idiotic,” the employee, who works on the asset management side of Silicon Valley Bank, told CNN in an interview. “They were being very transparent. It’s the exact opposite of what you’d normally see in a scandal. But their transparency and forthright-ness did them in.”
Becker and his leadership team revealed last Wednesday night a hope (but no firm commitment) to raise $2.25 billion in capital as well as $21 billion in asset sales that sparked a $1.8 billion loss.
That news set off a wave of fear across Silicon Valley, where the bank serves as a key lender to tech startups. Many of them panicked, yanking $42 billion last Thursday alone when Silicon Valley Bank’s stock crashed by 60%, according to filings by California regulators.
By the close of business that day, Silicon Valley Bank had a negative cash balance of about $958 million.
“People are just shocked at how stupid the CEO is,” the Silicon Valley Bank insider said. “You’re in business for 40 years and you are telling me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.”
Silicon Valley Bank did not respond to requests for comment but Becker has reportedly apologized to employees about the situation.
“It’s with an incredibly heavy heart that I’m here to deliver this message,” Becker said in a video message to staff on Friday, according to Reuters. “I can’t imagine what was going through your head and wondering, you know, about your job, your future.”
‘Widespread hysteria’
Jeff Sonnenfeld, CEO of the Yale School of Management’s Chief Executive Leadership Institute (CELI), told CNN he agrees that Silicon Valley Bank’s leadership deserves criticism for their “tone-deaf, botched execution.”
“Someone lit a match and the bank yelled, ‘Fire!’ – pulling the alarms in earnest out of genuine concern for transparency and honesty,” Sonnenfeld and Steven Tian, CELI’s research director, said in an email on Sunday to CNN.
Sonnenfeld and Tian said not only was the announcement of an unsubscribed $2.25 billion capital raise Wednesday night “unnecessary” because Silicon Valley Bank had sufficient capital far in excess of regulatory requirements, but there was no need to simultaneously reveal the $1.8 billion loss.
The one-two punch “understandably sparked widespread hysteria amidst a rush to pull deposits,” the two wrote, adding that they could have spaced the announcements out by a week or two and reduced the magnitude.
After his administration announced a swooping rescue of Silicon Valley Bank depositors on Sunday, President Joe Biden signaled US officials will be closely scrutinizing all parties involved in the bank’s collapse.
“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again,” Biden said in a statement.
The role of the Fed
For their part, Sonnenfeld and Tian argue Jerome Powell, Biden’s pick to lead the Federal Reserve, and his colleagues deserve at least some of the blame.
“There should be no mistaking that Silicon Valley Bank’s collapse was a direct result of the Fed’s persistent and excessive interest rate hikes,” they wrote.
Why? Because the Fed’s war on inflation depressed both the value of the bonds Silicon Valley Bank was relying on for capital and the value of the tech startups the bank catered to.
Of course, Silicon Valley Bank had more than a year to prepare for both of those issues.
The Silicon Valley Bank insider said the mismanagement of the bank’s balance sheet heading into last week was “stupidity” and questioned the strategy of the CEO and CFO.
Still, the employee, who is a Wall Street veteran, emphasized his belief that the downfall of Silicon Valley Bank was brought on by errors and “naivety,” not outright wrongdoing.
“The saddest thing is that this place is Boy Scouts,” he said. “They made mistakes, but these are not bad people.”
