And out of nowhere with almost no warning, the most important bank in Silicon Valley imploded this week. Fed Chair Jerome Powell was testifying in Congress and once again causing turmoil in the American markets midweek. Yesterday there were news stories about Silicon Valley billionaire, Peter Thiel and his Founders Fund telling people to get their money out of Silicon Valley Bank…that was yesterday. Today the bank has failed and the Feds have stepped in. My understanding is that actually the State of California closed them down and then immediately the Feds stepped in.
On CNBC today there was lots of talk about what will happen next. No one really knows. The numbers I hear kicked around is that this was a $200 Billion bank. The FDIC insures accounts up to $250,000. Word is that nearly all the accounts had more than $250,000 in them. The fallout is likely to be massive. Even if the U.S. Federal Government steps in somehow to try to make these people whole again, that will take time and I would think a lot of political clout. After all, we are talking about venture capitalists, Silicon Valley millionaires, tech start ups etc…does the country really want to bail these folks out?
So many companies will likely miss payroll starting on Monday. I’ve heard some tech execs will fund payroll themselves next week which is a nice gesture, but how long do they plan to do that? How long can they do that? When do they think the cavalry will come riding in to save them? I’m thinking at a minimum this is going to take months and possibly years to sort out. How much of the $200 Billion can be recovered? No one knows yet. Might be only be 10-20%? Possibly.
So are we near the end of the malaise and the slide in equities and home prices due to the Fed’s record breaking raising of interest rates to fend off inflation? I doubt it. It seems to me that SVB is the first big crack in the system and there will be more of this to come. We have only just begun to reset when it comes to residential and commercial real estate and the Fed is showing no signs of pivoting any time soon.
So what will be the impact on commercial real estate in Silicon Valley? I’m writing about this all the way across the country in beautiful Greenville, SC. I spent nearly a decade living in the San Francisco Bay Area so I have a particular affinity for the area and love following what is happening. I would expect many companies will fail as a result of SVB going under. They won’t have the cash to continue and that will have an impact on space they have leased. But knowing California and Silicon Valley, they’ll work their way through this over the next 18-24 months and soon enough this episode will be behind them. But in the meantime, there is likely to be a lot of pain and difficult times ahead for many individuals, companies and investors.
Will there be a ripple effect across the U.S. in terms of business investment and commercial real estate investment? It’s too early to tell. It will depend upon how big and dramatic things get as this unfolds. The market was already tightening up. Financing has been much more difficult the past 6 months or so. I would think that’s about to get even more difficult. Perhaps the Fed wants to keep pushing until we go right to the edge before the overall broader market siezes up. Let’s hope we aren’t going to get pushed to the edge again like 2008. No one wants to see that again.
Will Silicon Valley Bank be able to find a buyer?
CNBC just published an article on how the second largest bank failure in U.S. history went down.
A New York toy company is in jeopardy after Silicon Valley Bank collapses.
Solar companies impacted by SVB.
Associated Press – Silicon Valley Bank is seized after historic failure.
Twitter search Silicon Valley Bank
@unusual_whales has posted a very interesting thread on some insiders selling stock in $SIVB recently. Coincidence? Maybe it was just that they had a window of time to sell like these executives do and this was nothing unusual afterall. Only time will tell.
