Billionaire Bill Ackman warned the US is on the brink of a “soon-to-be irreversible mistake” if action is not immediately taken to deal with Silicon Valley Bank’s shut down. The collapse of SVB caused market shockwaves on Friday and threatens to trigger further damage within days. Ackman said the White House has until Monday to intervene or face the panicked withdrawal of uninsured cash reserves, potentially “draining liquidity” from major banks.
In a lengthy Twitter assessment published on Saturday, Ackerman said: “The Government 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.
“Absent @jpmorgan, @citi or @BankofAmerica 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’ (SIBs).
“These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions.”
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He warned the mass withdrawal could affect the Federal Reserve’s attempts to slow down inflation as Biden battles with Kevin McCarthy about the debt ceiling.
The investor said thousands of companies in the US are already expecting to miss payroll deadlines, with many more on the line if immediate action is not taken.
Silicon Valley Bank, the 16th-largest bank in the United States, mostly served tech firms and venture capital-backed companies
Ackman said: “This administration is particularly opposed to concentrations of power. Ironically, its approach to SVB’s failure guarantees duopolistic banking risk concentration in a handful of SIBs.
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“My back-of-the-envelope review of SVB’s balance sheet suggests that even in a liquidation, depositors should eventually get back about 98 percent 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 government guarantee of SVB deposits would be minimal.
“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.”
Silicon Valley Bank boasted half of the US technology and healthcare companies that went public last year among its clients.
Shopify, ZipRecruiter and one of the top venture capital firms, Andreessen Horowitz, were also among the account holders at SVB.
Internet TV provider Roku was among the victims of the bank collapse, with about 26 percent of its cash ($487 million) deposited at Silicon Valley Bank.
Roku said its deposits with SVB were largely uninsured and it didn’t know “to what extent” it would be able to recover them.
SVB’s collapse hit with incredible speed. Some industry analysts suggested Friday that the bank was still a good company and a wise investment.
Meanwhile, Silicon Valley Bank executives were trying to raise capital and find additional investors. However, trading in the bank’s shares was halted before stock market’s opening bell due to extreme volatility.
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