Billionaire Hedge Fund Manager Calls on Government to Rescue Silicon Valley Bank Depositors

Billionaire hedge fund manager Bill Ackman on Friday demanded lawmakers use taxpayer funds to rescue Silicon Valley Bank (SVB) depositors, a move some Republicans have already said they would oppose.

One of the problems [for SVB] was when money was so freely available to all these start-ups, they didn’t borrow a lot. So, they had a ton of deposits coming in and not a lot of opportunity to make loans out to people… So, they invested it in bonds. Bank of America I think has 25 percent of its assets in bonds, but this bank had over 50 percent of its assets in bonds.

Recently, those bonds have incurred a negative return and lost the bank money. 

“And at the same time, all these start-ups who are depositing so much money there are now withdrawing it because they don’t have access to free money anymore. So, they’re withdrawing it just to pay their bills. So, you’re having the deposits go down. They have to sell into a market where they are actually producing real losses, not just mark to market losses,” Carney explained.

Ackman believes it is the responsibility of taxpayers to bail out the bank so it can honor its obligations to avoid additional crises in the tech industry. Others are not so sure the taxpayers should shoulder the burden, such as Rep. Matt Geatz (R-FL), who believes if the government asks Congress on Monday to bail out the bank it will be “cloaked in national security and economic security and will be mired in… the swapping of campaign donations for favors.”

Ackman argued differently. 

“The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_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,” he tweeted. “Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t 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).”

“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 argued. “Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection.”

“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. So even without assigning any franchise value to SVB, the cost of a gov’t guarantee of SVB deposits would be minimal,” he said. “On the other hand, the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below.”

Ackman did acknowledge the bank managers made a mistake in how they invested the business’s deposits and should lose their job for it. “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,” he said.