Regulators shut down Silicon Valley Bank on Friday, putting it into FDIC receivership. Early Friday, trading was halted for the stock after it plunged 87% in two days. Wall Street strategists and executives shared their reaction to the first bank collapse since 2008. Loading Something is loading.
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Silicon Valley Bank’s collapse has sparked panic as the financial industry sees the biggest bank failure since 2008.
Regulators in California shut down the firm on Friday, putting it into FDIC receivership, and the company’s stock plunged 87% in two days as some venture capital firms advised their startups to pull cash from SVB.
SVB announced it was looking at putting itself up for sale after failing to raise new capital following steep losses on the sale of a bond portfolio that soured amid surging interest rates.
Here’s what some top voices on Wall Street are saying as the turmoil unfolds.
Brian Levitt, global market strategist, Invesco
“Silicon Valley Bank and First Republic have emerged as the first cases of banks with business models and balance sheets that are ill-prepared for a rising interest rate environment and the ever-growing risk of a recession,” Levitt told Insider.
“Investors, smelling blood, then turn their attention to the next bank exposed to interest rate risk and specific credit risk, and then the next. First Republic Bank, which has significant exposure to the coastal real estate markets appears to be next on the list.”
Brent Schutte, chief investment officer, Northwestern Mutual Wealth Management
“I see today’s news as somewhat of a warning to the Fed that their actions have impact,” Schutte told Insider. “It’s possible that this could convince them to slow down their pace, especially if concerns grow about other regional banks with exposure to the tech space. Tech is incredibly important to the to US geopolitically, so this failure may raise broader concerns for policymakers.
“Importantly, we don’t believe this is anything like 2008-09. The largest and most systematically important banks have been heavily regulated and stress tested for years. However, to me this is a warning to the Fed about the impacts on a forward basis that their aggressive rate hikes are having.”
Lundy Wright, partner at Weiss Multi-Strategy Advisers
“Regulators stepping in was a confirmation that the bank was dead or nearly dead. I think doing nothing would’ve been negative, but getting involved stops things in their tracks,” Wright told Insider.
“When you raise interest rates quickly, after 15 years of overstimulating the economy with near-zero rates, to not imagine that there’s not leverage in every pocket of society that will be stressed is a naive imagining.”
Nancy Tengler, chief executive and chief investment officer, Laffer Tengler Investments
“Often what we get from regulators, they close the barn door after the horses are out of the barn,” Tengler told Insider. “There’s an element of that here. This shouldn’t have been that difficult to catch sooner. It’s not like interest rates haven’t been rising for a year. There’s a laziness factor that’s settled into the financial business over the last decade when money was free.”
Jamie Cox, managing partner, Harris Financial Group
“When the Fed jacks up interest rates 500 basis points in a matter of months, things like SVB happen,” Cox told Insider. “The Federal Reserve is the maker of the crisis and will likely need to cut rates to fix it.”
Quincy Krosby, chief global strategist, LPL Financial
“Monitoring the bank stocks, and exchange traded funds, particularly regional institutions, should signal if there’s a broader problem,” Krosby told Insider. “Any tremors could also be felt within the hedge fund world, and it’s why there’s notable attention paid to any pressure emanating leading to unusual heavy selling. Situations like this could lead to increased ‘forced’ selling, which is typically the signal that pressure is building.”