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- Billionaire investor Bill Ackman posted a lengthy tweet about the Silicon Valley Bank collapse Saturday.
- Ackman criticized the response of the federal government and its lack of monitoring SVB for risk.
- He said the government has “about 48 hours to fix a-soon-to-be-irreversible mistake” with its handling of SVB.
Billionaire investor Bill Ackman is calling on the federal government to intervene in the collapse of Silicon Valley Bank after the once-trusted bank of tech and startup founders was shutdown by regulators on Friday.
“The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake,” Ackman tweeted in a lengthy post Saturday morning.
SVB became the second-largest bank failure in the US, after its stock price cratered by about 86% this week, prompting the Federal Deposit Insurance Corporation to take over. Ackman warned that if the government or another large bank like J.P. Morgan or Bank of America fails to take over SVB, it may lead to similar bank runs at other small financial institutions, as anxious clients move to pull uninsured deposits.
In Ackman’s view, this could lead to the collapse of several other smaller banks around the country.
The billionaire founder and CEO of hedge fund Pershing Square Capital Management argued that a lack of more immediate federal intervention earlier in SVB’s collapse could have larger, disastrous effects for the banking industry and the economy at large.
“SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs,” Ackman said.
He continued, chastising the government for its failure to monitor the bank prior to its collapse: “The @FDICgov and OCC (Office of the Comptroller of the Currency) also screwed up. It is their job to monitor our banking system for risk and SVB should have been high on their watch list with more than $200B of assets and $170B of deposits from business borrowers in effectively the same industry.”
The bank’s website said it was used by about half of all venture capital-backed startups in the US. Earlier this week, the bank’s stock began to plummet after it sold about $21 billion of its bond portfolio, which led to a loss of about $1.8 billion due to changes in interest rates from the time SVB bought the bonds, Insider previously reported.
While the bank attempted to raise about $2 billion through a sale of stock and other securities, what effectively became a bank run began as venture capitalists and startup founders began to pull their money over concerns with the bank’s strength.
Silicon Valley Bank’s HQ in Santa Clara, California
Ackman previously called for the federal government to step in, but clarified in a series of tweet on Thursday that a bailout should be designed to protect those with deposits in the bank, not the management of the bank who could be to blame for the failure.
On Saturday morning, Ackman stressed the importance of the government handling the situation quickly because of the amount of startups that depend on SVB for payroll and other expenses.
“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.
Ackman is the latest high-profile figure to call for government intervention to assist SVB, joining Mark Cuban who tweeted his own take on the situation on Thursday, including the idea that the government should buy all of SVB’s debt.
Meanwhile, Nobel Prize-winning economist Paul Krugman tweeted early Saturday that SVB’s strength was cultivating relationships within Silicon Valley, and said it’s unlikely this moment will compare to the Lehman Brothers collapse during the 2008 financial crisis.