What is known so far about the bankruptcy of SVB in the US – 03/13/2023 – Market

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How a bank broke in 36 hours

It didn’t take even two days for SVB (Silicon Valley Bank), the 16th largest US bank, with US$ 209 billion in assets, to go bankrupt.

The second biggest collapse of a bank in American history was consummated on Friday (10), when the regulatory bodies took control of the institution.

• On Sunday, they said all account holders will be paid in full, and no losses will be borne by the US taxpayer.

We explain what is known so far about the case and the impact it may have on the financial system:

The bank: Founded 40 years ago in Silicon Valley, a global technology hub, SVB has become a solution for startups. At the same time that they needed money to grow, these companies, as newcomers, had little access to bank credit.

• No wonder almost half of American startups were SVB customers.

How did we get here? Thanks to the risk appetite generated by zero interest rates in 2020 and 2021, SVB grew along with its customers, who never received as much money as they did in that period. Bank deposits grew by 86% in 2021.

• To deal with this volume of contributions, the SVB started to put the money in fixed long-term government bonds, an investment considered to be super safe. With zero interest, the yield was also very low.

The scenario turned sour when the Fed started raising interest rates to curb the highest inflation in the US in 40 years.

• But startups still needed capital to continue operating. The solution was to start drawing what they had in the SBV.

What went wrong? The SBV’s portfolio was very concentrated in pre-fixed securities, whose prices fall when interest rates rise (we explain mark-to-market here).

• To account for withdrawals from startups, the bank sold $21 billion of these papers, to a loss of $1.8 billion, said the SVB on Wednesday (8). At the same time, the institution also communicated that it would issue shares to recover the loss. This was the trigger for the crisis.

• The next day (9), the bank’s shares plummeted 60%while startups and their investors, venture capital funds, rushed to withdraw their money fearing it would go bankrupt.

• Withdrawal requests totaled $42 billion –a quarter of the institution’s assets. The bank broke.

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And now?

The authorities want to avoid as much as possible that the withdrawal movement is contaminated by other banks, especially smaller ones, such as regional ones. This happened to Signature Bank, which has law firms as clients, and it also ended up going bankrupt.

• To honor the payment to SVB customers and avoid new bankruptcy, the US authorities are working on some plans.

the priority is to find a buyer, so that it can start operating again. If you are not interested, the FDIC (Federal Deposit Insurance Corporation) can be used beyond its limits.

• The FDIC is the American equivalent of the FGC (Fundo Garantidor de Créditos) in Brazil, an entity maintained by the bank that guarantees the reimbursement of up to a certain amount to account holders in the event of an institution going bankrupt.

• In the US, this limit is $250kbut many SVB accounts were above that threshold.

The Fed also announced which will create an emergency loan program, financed by the Treasury, so that banks that have to compensate withdrawals do not have to sell government bonds at a loss.

What are the main impacts so far? Some SVB client startups ran out of money to pay employees’ salaries, and turned to their investors or even personal loans to put out the fire.

• Countries like India, Israel and the United Kingdom move to protect local startups that had money in the SVB. Brazilian companies are also exposed to the bank, and some rushed to transfer their funds on Friday, reported Valor Econômico newspaper.
• Nubank, the largest fintech in the country, informed the market that it has no exposure to SVB.

Opinion:

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Startup of the Week: Barte

On Mondays, the chart shows an x-ray of a startup that recently received funding.

The startup: With less than a year of operation, Barte has a B2B model (acronym for business to business, business between companies) and says it acts to simplify cash management and facilitate access to credit.

• Its customers are SMEs (small and medium-sized companies) in which the payment flow is an essential part of the operation, such as marketplaces, consultancies, equipment manufacturers, etc.

in numbers: the startup announced last week that it had raised BRL 16 million in a seed round (understand the stages of investing in startups here).

• The contribution is added to BRL 6.5 million announced six months ago, when Barte was taking its first steps.

Who invested: the round was led by the NXTP fund –which has heavyweights such as Nuvemshop and Cargox in its portfolio– and by the Force Over Mass fund, which debuts in Brazil with the investment in Barte.

What problem does it solve: the startup automates its customers’ transactions, so they are less concerned with cash management. Through its platform, it also facilitates access to credit, which is often a bottleneck for SMEs.

Why it stands out: in addition to the company registering the highest seed funding in the last week, the volume raised –R$ 22.5 million– with less than a year of operation is noteworthy.

• During this period, it attracted more than 2,000 customers and moved more than R$20 million through the platform. For this year, the goal is to multiply in size by ten times.

The week in summary

There were 11 rounds announced by Latin American startups, with US$ 50.6 million (R$ 262 million) in investments.

The data was provided by the Sling Hub platform.

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Real estate funds feel the crisis of retailers

The retail crisis that hit Americanas, Marisa and Tok&Stok ended up slipping into FIIs (real estate investment funds).

Understand: these assets have rental contracts for logistics warehouses and stores with the companies, which they failed to honor with the payment.

• The default ended up affecting the distribution of income to shareholders, who, as they are exempt from income tax, are the main differential of this type of asset.

• The FIIs, however, have the prerogative to file an eviction action. If the property is well located and of a high standard, they should be able to find new tenants without much difficulty.

The main funds affected by the retail crisis

Vinci Logística Real Estate Investment Fund (VILG11): reported on February 15 that it filed an eviction action against Tok&Stok after it had not paid the rent for a logistics warehouse in Extrema (MG).

• The asset represents 14% of the fund’s income and the shareholders ended up receiving BRL 0.53 per share in February, down 21% compared to the January distribution (BRL 0.67). The February rent payment has been made.

Kinea Real Estate Income (KNRI11): reported not having received the amount of rent owed by Marisa for the month of January from a distribution center in Itaquaquecetuba (SP).

• The retailer’s contract represents only 4% of the fund’s revenue and did not impact the distribution of earnings.

Brazil Retail (BVAR11): it did not receive January rent from Marisa, with the company accounting for 80% of the fund’s real estate revenue, which had an impact on the distribution of R$5.95 per share.

the funds VBI Logístico (LVBI11), Bresco Logística (BRCO11), VBI Real Estate, (LVBI11) and Max Retail (MARX11) have exposure to Americanas, a company in RJ (judicial recovery).

• While debts from the pre-RJ period will be negotiated during the process, payments due after the RJ follow the normal procedure.

Opinion:

• Real estate funds are more suitable investments than real estate, but most prefer the worst. Find out on the blog De Grão em Grão.