SVB's Implosion Gets Wall Street Talking: Cuban, Ackman, Chanos, Burry, Schiff And Krugman Respond

The collapse of Silicon Valley Bank, which is held by SVB Financial Group SIVB has sent shock waves across the markets. On Thursday, as the stock market digested the disclosure from SVB about the need to shore up its capital through an equity offering, its stock tanked, leading to a drop in other regional banking stocks, as the broader market moved lower on Friday.

Here are a few voices heard on Wall Street regarding the fall of the regional bank:

Burry Raises Specter Of Enron, Worldcom: Big short fame Michael Burry, who is known for his notorious cryptic tweets on Thursday tweeted that “It’s possible today we found our Enron,” referring to the energy company that went bankrupt in the wake of an accounting scandal. The tweet has since then been deleted.

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Chanos Slams VC Community: Jim Chanos shared the FDIC order taking possession of the bank, which said investors and depositors initiated withdrawals of $42 billion in deposits from SVB on Thursday.

“This is stunning. $42 billion was probably a quarter of their deposit base as of Wednesday night,” he said. In a separate tweet, he noted that public companies with uninsured deposits with the bank have to start making some “uncomfortable disclosures soon.”

Chanos also took exception to the VC community’s calls for the Fed to bail the bank out. While noting that the VC community started the run on Thursday by asking its portfolio companies to pull their deposits, he said they want the “taxpayer to bail out their investments.” “Capitalism, Silicon Valley-style.”

Cuban Calls For Fed Bailout: Shark Tank fame billionaire Mark Cuban chimed in with his thoughts as well in a tweet thread. He said the FDIC’s standard insurance coverage of up to $250,000 per bank is too low.

He slammed the regulators, stating that they were supposed to have watched and warned, and also took potshots at the people who withdrew money and asked others to do so as well, causing the run on the bank.

Cuban called for Fed’s intervention and said this wouldn’t be a bailout. “The Fed effectively is providing cash to end the run, and in return getting long-dated assets that will pay at maturity, and for the risk assets, should offer some positive return as well.”

He also clarified that he has no personal funds with the bank, but his portfolio companies do, with potential exposure of about $8-$10 million. “So I can help them. But it's the other 200b and how many employees and vendors? I'm concerned about them” he added.

Schiff Comes Down Hard On Fed: Sharing a 2018 tweet of his delving into the ill effects of higher interest rates, economist Peter Schiff said, “thanks to the Fed’s reckless monetary policy the entire U.S. banking system is a house of cards.”

“Higher interest rates knock out the foundation.”

The gold bull re-upped his recession call from late last year.

He also warned of a worse financial crisis than 2008 that could be imminent unless the Fed acts quickly. Although if the Fed does take action, a far greater U.S. dollar and sovereign debt crisis will occur later, he said, underlining the “Catch 22” situation the Fed finds itself in.

Krugman Sees No Déjà vu: SVB was basically buying agencies and Treasuries, which are safe assets, economist Paul Krugman said. SVB’s failure, therefore, won’t cause anything like the crash in mortgage-backed securities that followed the Lehman collapse, he added.

“Systemic issues are less obvious,” the economist said. “What I don't have a sense of is how much this will damage the VC financial ecosystem — or how much the rest of us should care,” he noted.

Ackman Calls For Bailout Of Depositors: Pershing Square’s Bill Ackman said the SVB fiasco could destroy an important long-term driver of the economy. He noted that VC-backed companies rely on SVB for loans and holding their operating cash.

“If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered,” he said. The hedge fund manager called for something similar to the Fed's facilitation of JPMorgan Chase & Co., Inc's JPM purchase of Bear Stearns.

If SVB is solvent, the government could guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections, Ackman said. This, he noted, will give the bank enough time to restore the franchise and raise new capital.

The bailout should be designed to protect depositors, not equity holders or management, the fund manager said. “We should not reward poor risk management or protect shareholders from risks they knowingly assumed,” he added.

Also Read: EXCLUSIVE: No, Silicon Valley Bank Collapsing Doesn't Mean The Sky Is Falling: Here's Why