‘The government has about 48 hours to fix a soon-to-be-irreversible mistake’: Hedge-fund titan Bill Ackman warns some businesses may not be able to meet payroll in wake of SVB’s failure

‘The government has about 48 hours to fix a soon-to-be-irreversible mistake.’

— Bill Ackman, Pershing Square Capital Management

That’s Bill Ackman, the billionaire founder and CEO of the hedge-fund outfit Pershing Square Capital Management, speaking via Twitter early Saturday about Friday’s dramatic collapse of the prominent tech-sector lender Silicon Valley Bank.

Continued Ackman:

“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. 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.’ ”

The abrupt collapse into receivership of the bank, a unit of SVB Financial Group
has left some startup businesses scrambling to make payroll and wondering whether they will be forced to lay off staff if money held by the bank is frozen or even lost.

Large companies such as TV provider Roku
and videogame maker Roblox
warned investors that they had hundreds of millions of dollars in cash deposited with Silicon Valley Bank that may suddenly 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 his lengthy tweet on Saturday.

Silicon Valley Bank had relationships with more than half of the venture-capital-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 startups and for the broader tech scene, said Garry Tan, chief executive of Y Combinator, a noteworthy Silicon Valley startup incubator.

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

While the Federal Deposit Insurance Corp., or FDIC, took over the bank, which is known for lending to startups but also engages in private banking, providing mortgages and other financial services, deposits are only federally 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 state agency and the FDIC on Friday, with trading in shares of SVB Financial suspended after a precipitous decline on Thursday and in premarket action Friday.

The bank became the first FDIC-backed institution to fail this year as well as, reportedly, the second biggest failure on record.

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

The FDIC said that 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 by Friday. Deposit holders would be able to withdraw up to $250,000 on Monday, the FDIC said. For those with more than that deposited, the FDIC 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 U.S. 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 on Saturday.

Still, the FDIC’s statement on Friday didn’t indicate a likely quick sale of the whole company. 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.

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