Specialist
Former executive at Silicon Valley Bank (SVB Financial Group)
Agenda
- SVB’s (NASDAQ: SIVB) operating environment that resulted in the bank’s insolvency, touching on corporate governance and strategy
- Implications of lack of deposit base diversification
- Expectations for possible buyout and vertical divestment scenarios
- Outlook for further bank runs across the regional banking space, highlighting PacWest Bancorp (NASDAQ: PACW), First Republic Bank (NYSE: FRC) and Signature Bank (NASDAQ: SBNY)
Questions
1.
Could you guide us through the events leading to SVB’s fall into receivership over the last few days? Was any of it expected, and who are you looking at for the blame?
2.
What can we make of SVB not having a CRO [chief risk officer] for roughly eight months while the VC ecosystem was in spiral? Surely, the CRO wouldn’t have been the only risk officer in the company, so who should be held accountable within the risk department if anyone?
3.
How do you feel SVB’s risk positioning changed pre- and post-CEO Greg Becker?
4.
How has the importance of quality corporate governance been elevated in assessing the health of regional banks? Do you see this taking the fore more often when people analyse perception of risk at these banks?
5.
A couple of years ago, Greg Becker was part of a lobbying group to remove the Dodd-Frank safety rails. A couple of weeks ago, he sold a large portion of his shares prior to the portfolio loss announcement. You were at SVB for 20 years. What would you be asking Greg today?
6.
The Dodd-Frank roll-back reduced the level of scrutiny or supervision that SVB received. To your earlier point, it seems that the level of unrealised loss on the bank’s portfolio or off-balance sheet was missed by auditors and regulators. People are saying that had Dodd-Frank been in place, the current situation may have not happened. What are your thoughts on that?
7.
You’ve been in the VC-exposed banking space for years now. How do you think recent events impair the relationship between banks and VCs?
8.
People argue that SVB technically wasn’t insolvent and could have dug itself out of the hole if the VC community hadn’t incited a panic. Do you think there should be more regulation on VCs given the elevated influence they have on companies and the banks that they deposit at?
9.
Setting regulation aside, how do you think banks may view heavily VC-backed deposits differently now that the implicit social code of you help us, we help you, has been staunchly violated?
10.
Signature was a bank with very minimal crypto exposure, but it branded itself as catering to an emergent sector. It was primarily and historically a commercial real estate lender to the largest commercial real estate market in the country, and arguably the world, and yet it was taken down. This is much more a crisis of confidence and how perception of risk may potentially drive runs. What makes PacWest, Comerica and Western Alliance Bank immune to this given that they also have at least some exposure to tech and VC banking, and this is clearly how the market’s reacting to those exposures?
11.
Do you at least expect a reduction in tech or VC banking divisions for regional banks, ie, a retreat to more traditional exposures and services, as a way to induce more confidence in current and future depositors?
12.
What lessons can we take from SVB and Silvergate as we look to assess the rest of the regional banking sector’s health?
13.
How would you build a framework to determine if others players in the regional bank landscape have similar portfolio risks to SVB? What main variables would you use to triangulate which other players are at most or least risk of a similar outcome?
14.
This wasn’t the first time in your career that you saw interest rates increase at a rapid rate – we saw this in 2004-07. How did the way that SVB mitigated interest rate risk then differ to now?
15.
How could recent developments play out as a good thing for banks other than SVB?
16.
Where could SVB, Silvergate and Signature’s assets land? You’ve been a relationship manager for some time now, so what do you think clients’ will be doing with their assets now?
17.
Where do you expect operational funds to land? Are they going to divert to larger too-big-to-fail institutions that don’t have that same level of relationship management or client attention, or are they going to land at other regional banks?
18.
What’s your outlook on PacWest, Western Alliance and Comerica? Yes, they weren’t focused fully on tech or VC banking, but they had segments. Where do you think those deposits will move to now? These names are still trading quite negatively since last Friday.
19.
First Republic was recently downgraded to junk status and is now considering a sale. Do you expect downgrades of other regional bank names, at least the least diversified regional bank names?
20.
Why do you think it’s taken so long to hear a verdict on SVB’s sale? Over the weekend, we were told to expect a verdict at the end of Sunday, and it’s Thursday now.
21.
Why do you think SVB is looking to be bought out as a whole? Obviously, we’re seeing a lot of interest in the loan book, but what do you think will be made of the core commercial banking services?
22.
First Republic is exploring options for sale after the downgrade, so could we start seeing more regional banks look for a sale or merger before having a similar fate fall on them in terms of deposits? Will they try to take control of their situations and look for mergers or buyouts before their shares drop even further and they’re forced to liquidate?
23.
The US banking system still has over 4,400 banks and towers beyond any other country’s system in terms of size. Frankly, perhaps there is room for consolidation – you’ve already mentioned that you expect some consolidation. We did see the number of commercial banks in the US drop by 2,800 after the global financial crisis, so how much do you think the US regional banking space will shrink or consolidate? Could it be 5-10% over the next year?
24.
The federal government and FDIC [Federal Deposit Insurance Corp] have said that all uninsured SVB deposits across the country are going to be insured. Could taking out this element of risk reduce the banking sector’s profits or profit-making ability to that of the utility sector?
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