Tentacles of Contagion - FTX, Silvergate Capital, SVB Bank - Crisis of 3 is the start, now what?
March 12, 2023 - Avoid Crisis hosts Reynaldo Arellano and Allen Plyler kicked off the maiden voyage of the Avoid Crisis Podcast with a deep dive into the developing financial crisis and a stern warning to the FDIC calling on them to do their job and do it fast. In addition, the crisis of uninsured deposits at risk was focused on with the hosts advising listeners to heed their ability to effect transfers to maintain their balances under the FDIC single depositor limit of $250,000.
Key Points from Rey
Key Points from Rey
- Silicon Valley Bank went into receivership March 10, and this crisis will not be limited by geography or isolated to the tech industry. This crisis is different and there will be awakening by the end of next week.
- There will be winners and losers now and listeners should prepare.
- SVB UK branch is shut down and with Monday coming soon, London will need to work on the unwind. This is a global situation.
- Take out any money in SVB now, even if it is less than $250,000.
- If you have uninsured deposits, try to move them into other banks and stay under the $250,000 limits.
- California laws require paying payroll timely, and IOU’s for payroll don’t count.
- Liquidity is key. You have to access to cash to get through this time. VC, founders, investors are going to have to step up.
- In the CFO seat you don’t get to wait, you don’t get to punt, you have to deal with what is in front of you.
- There is risk of fraud when banks fail.
- SVB workforce will need incentives to stick around and work.
- First Republic Bank is a regional bank that is at risk now based on the uninsured deposits.
- This crisis could accelerate the path to a recession in the economy, and this crisis will impact the global economy.
- Look for banks that are stepping up now, they may be the winners.
- SVB had skin in the game, and a fire sale won’t allow the intellectual property to monetize the same way. The triangle between SVB as a lender, VC as a sponsor of a startup, and the founders of startups, is now broken.
- SVB started from a poker game. Traditional banks didn’t understand how to value tech.
- Nobody understood how Amazon was spending money to build infrastructure that ultimately paid off.
- Risk has a cost, the sword cuts both ways.
- People may have 30 to 40 banks now.
- Diversification of your risk is important now. Be aware of concentration risk.
- Immediate need is cash flow. If you don’t have it go find it. This can be a cash flow crisis. Keep your powder dry.
Key Points from Allen
- Silicon Valley Bank was second most searched item in internet, second to Daylight Savings Time
- In the 2008 financial crisis there were three banks that failed first in 2007, then nine others, way ahead of Lehman Brothers. We have three big failures now, especially since SVB is the second largest ever.
- Because of the interest rate moves, bank balance sheets have been corroded and eroded.
- SVB was so integral to the VC community and Silicon Valley tech scene, that in California, there may only be two or three degrees of separation before someone you know is connected in some way to SVB.
- FDIC paper (certificates) won’t pay your payroll
- Startups may not have very good treasury management, and they need to be developed
- Once you see a crack in the windshield (start of a crisis), the crack is going to get bigger. You don’t want the whole windshield to collapse.
- SVB financials disclosed losses from fraud in their financials
- This is a serious problem and it has the attention of Joe Biden, Janet Yellen, and Gavin Newsome
- The biggest risk now is the contagion of fear
- The law of small numbers is a risk now as individuals may take their money out of banks.
- Banks can’t sit on deposits
- Interest rates over last 200 years averages around 6% now Fed is inching toward that number
- SVB got big upside in its earnings when a company with a warrant from their lending went through an exit in an IPO. There is a large amount of intellectual property that is not on the balance sheet because of the account rules.
- It is critical the right actions are taken now to contain this crisis.
- Tech and Innovation has changed the economy of the US. The 360 view of how innovation gets funded is why Y Combinator and Sam Altman have achieved.
- Take the Amazon challenge, what can’t you find on Amazon.
- Bigger companies absorb startups sometimes because of their niche intellectual property. That may now be at risk if startups don’t have liquidity.
- Spreading uninsured deposits to keep under the $250,000 limits sounds like a startup.
- SVB employees should be looking for a new job and companies should try to hire them
- Avoiding Crisis is about making good decisions every day.
- What existed a week ago doesn’t exist anymore. We need to adapt.
Connect with Rey
linkedin.com/in/reynaldoarellano
Connect with Allen
linkedin.com/in/allen-plyler-cpa-mpm-3803992a/
Leave a review on Apple Podcasts or Podchaser
Subscribe to the Avoid Crisis podcast in your favorite podcast app!
linkedin.com/in/reynaldoarellano
Connect with Allen
linkedin.com/in/allen-plyler-cpa-mpm-3803992a/
Leave a review on Apple Podcasts or Podchaser
Subscribe to the Avoid Crisis podcast in your favorite podcast app!
Creators and Guests
Host
Allen Plyler, CPA, MPM
Allen Plyler, CPA, MPM is an experienced CFO in Technology, Start-ups and Financial Services with focus on large scale accounting implementations, evaluating emerging accounting Standards and SEC external reporting for publicly held companies. He is experienced in structuring capital markets and equity deals while also providing consulting to CEO and CFOs for business strategy.
Host
Reynaldo E. Arellano, CPA PFS CGMA
Reynaldo E. Arellano, CPA PFS CGMA is a Certified Public Accountant (CPA) with professional designations as a Personal Financial Specialist (PFS) and Certified Global Management Accounant (CGMA). In addition to providing traditional CPA services such as bookkeeping, accounting, and taxes (planning, compliance, and representation) his Firm also offers tactical CFO services and strategic business advisory services. Mr. Arellano started in the financial profession as a Big 8 auditor, then an accounting software consultant, then a Controller eventually becoming a CFO, and held NASD and life insurance licenses (presently inactive). Mr. Arellano has consistently proven to have the highest levels of integrity, intelligence and innovation. He has held numerous managerial (C-suite) and leadership (board of directors) positions within corporations and non-profit organizations.
