“The government has about 48 hours to fix a-soon-to-be-irreversible mistake”: Bill Ackman warns some businesses may not be able to meet payroll after SVB’s failure

The government has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowingSVB Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent JPMorgan or Citi or Bank of America acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the government guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs).

— Bill Ackman, CEO Pershing Square Capital Management

Silicon Valley Bank’s collapse on Friday has left some start-up businesses scrambling to pay workers and wondering if they will be forced to lay off staff if money held by the bank is frozen or lost.

Large companies such as connected TV provider Roku and video game maker Roblox warned investors that they had hundreds of millions in cash deposited with Silicon Valley Bank that may be in jeopardy.

See: Roku says it ‘does not know’ how much of its cash it will be able to recover from SVB

“Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week,” Ackman said in a long tweet on Saturday.

Silicon Valley Bank had relationships with more than half of the venture-backed companies in the United States, according to its website. If there isn’t a quick rescue of the bank, the consequences could be dire for many start-ups and the broader tech scene, said Garry Tan, chief executive of Y Combinator, one of the most important Silicon Valley start-up incubators.

See: Silicon Valley Bank’s failure is an extinction-level event for startups, says Y Combinator’s Garry Tan

While the Federal Deposit Insurance Corporation (FDIC) took over the bank, which is known for lending to start-ups but also does private banking providing mortgages and other services, deposits are only insured up to $250,000. The bank’s assets totaled more than $200 billion. Around $42 billion was withdrawn from the bank on Thursday alone, according to California’s Department of Financial Protection and Innovation.

Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (FDIC) on Friday and a received was appointed. The bank became the first FDIC-backed institution to fail this year.

See: Silicon Valley Bank branches closed by regulator in biggest bank failure since Washington Mutual

The FDIC said Silicon Valley Bank had about $209 billion in total assets and about $175.4 billion in total deposits as of the end of December, but that it was unclear how much the bank had on its balance sheet now. Deposit holders would be able to withdraw up to $250,000 on Monday, the FDIC said. For those with more than that deposited, it provided a hotline number to call.

“My back-of-the envelope review of SVB’s balance sheet suggests that even in a liquidation, depositors should eventually get back about 98% of their deposits, but eventually is too long when you have payroll to meet next week,” Ackman said. “So even without assigning any franchise value to SVB, the cost of a gov’t guarantee of SVB deposits would be minimal.”

As US regulators seek a buyer for the remnants of SVB Financial Group, they’ll be working to find a buyer for SVB’s commercial-banking operations, a wealth unit, an investment bank and a fund manager, Bloomberg reported Saturday.

Still, the FDIC’s statement on Friday didn’t indicate a likely quick sale of the whole firm. The regulator said it would issue an advance dividend to uninsured depositors within the next week with future payments perhaps coming as asset sales occurred.

Source: https://www.marketwatch.com/story/the-government-has-about-48-hours-to-fix-a-soon-to-be-irreversible-mistake-bill-ackman-warns-some-businesses-may-not-be-able-to-meet-payroll-after-svbs-failure-1cb2e6d9?siteid=yhoof2&yptr=yahoo