US Regulators Examine Silicon Valley Bank's Collapse; Credit Suisse Shares Plunge
One of the possible concerns for regulators was how the bank did not replace a chief risk officer, who had left last year, for several months at a time when risks in the system were, as is now clear, building up.
As investors in the US came into work, they were confronted with reports (Wall Street Journal) that the Justice Department and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank. The WSJ quoted unnamed sources.
Separately, shares in embattled Zurich-listed Credit Suisse plunged amid a widespread worry about banks’ financial exposures. In the case of Credit Suisse, the bank’s shares have suffered from a string of mishaps and scandals. Yesterday, it disclosed that there had been "material weaknesses" in its internal controls over financial reporting. Saudi National Bank’s chairman – the largest investor in Credit Suisse – Ammar Al Khudairy has reportedly ruled out injecting further funds into Credit Suisse if there was another call for additional liquidity. Al Khudairy told Reuters that Saudi National Bank cannot provide the Swiss bank with more financial assistance, saying: “We cannot because we would go above 10 per cent. It’s a regulatory issue.”
Share trading was also temporarily halted in BNP Paribas; Societe Generale; Societe Generale; UniCredit; and Monte dei Paschi, reports said.
The WSJ article (March 14) said the US authorities’ separate probes are in their preliminary phases and may not lead to charges or allegations of wrongdoing.
Shares in SVB Financial Group fell 60 per cent last week and have been suspended from trading since Friday. Another bank, with exposures to sectors such as cryptoassets – Signature Bank – has also been taken into federal protection for depositors. Over the weekend, the UK arm of Silicon Valley Bank was purchased by HSBC’s UK business.
An issue for regulators could be that when Laura Izurieta stepped down from her role as chief risk officer in April, the company did not have a designated person in that role until January, when the company announced it had hired Kim Olson, a former CRO for Sumitomo Mitsui Banking Corp.
“The collapse of SVB could very well be the black swan event that feels eerily like a repeat of 2008. Unlike 2008, where the causes of collapse were based upon bad risk management and non-prudent lending, the current criss facing SVB, alongside other smaller institutions with large deposit portfolios, is integrally linked to the recent interest rate hikes by the Fed in the efforts to combat inflation,” Zayn Kalyan, CEO and director at Infinity Stone Corp, a supplier of lithium, said.
“I find that these challenges are no less systemic than they were in 2008 and while the banks themselves are less directly responsible, there is a risk that a loss in confidence will result in pressure on other smaller institutions, however solid their portfolios are, as well as the risk the ripple effect could reveal other systemic risks that exist with interest rate and the large positions in long-term US treasuries that many institutions have built up over the past months.”
Munish Chopra, former managing director of Triton Partners, said: “It's nowhere near a 2008 event. Everyone is worried about markets, but this is not a rolling crisis. SVB is not systemically important. No other bank will fail unless the FDIC and Fed let depositors go uncovered. If they do, everyone will flee to the top 10 banks. No other bank has a balance sheet this lopsided, except for likely some very tiny banks that are of no importance to the economy.”
“It's a bank governance failure and arguably a failure by the FDIC to impose proper stress tests and stricter accounting. There's something called an AOIC opt-out which SVB was allowed to do that didn't really hide anything if you were diligent but flattered the balance sheet. I'd also argue that it's ridiculous the chief risk officer resigned in April 2022, and they didn't replace that role until January 2023.”
Anthony Turner, corporate partner and M&A export at UK law firm Farrer & Co, said: “The acquisition of the UK arm of Silicon Valley Bank by HSBC for £1 will send waves of relief around the financial services, tech and life sciences industries. The deal has not only protected the interests of SVB’s depositors and customers but has also bolstered confidence in the UK as a stable financial centre.
“The UK government was keen to be seen to move quickly to quell concerns of wider financial collapse and helped close the deal without, so far as we know, overt financial support. The willingness of the government and regulators to move proactively clearly shows how important they deem the wider tech and life sciences sectors to be in the UK, and that they have learnt from previous failures to ensure financial stability.
“While the full details of the deal have not yet been revealed, this appears to be a significant win for HSBC. However, the speed of the deal, while expedited with good reason, may bring commercial challenges, in the form of the long-term liability risks and post-deal integration.
“With market dynamics influenced by high interest rates and a number of other macroeconomic factors, SVB’s fate will be a warning of potentially tougher times in the banking and wealth management sector, while whetting the appetite of those with pockets deep enough to move quickly to snap up attractive prospects,” he added.