New York (CNN) The blame game is on who the Silicon Valley bank failure is, and tech sector SVB CEO Greg Baker is pointing the finger at allowing his company to become the second worst US bank failure in history.
One Silicon Valley banker, who asked not to be named, was surprised to learn that Baker publicly acknowledged the extent of the bank’s financial problems before privately lining up the necessary funding to weather the storm.
This set the stage for panic as customers rushed to grab their money.
“It was absolutely stupid,” the employee, who works through asset management at Silicon Valley Bank, told CNN in an interview. “They were being very transparent. This is the complete opposite of what you see in a typical scandal. But their openness and transparency got them in.”
Baker and his management team on Wednesday night expressed hope (but no firm commitment) to raise $2.25 billion in capital, as well as a $21 billion asset sale, to offset the $1.8 billion loss.
That news set off a wave of panic in Silicon Valley, where the bank serves as a key lender to tech startups. Many panicked when Silicon Valley Bank’s stock plunged 60 percent just last Thursday, according to data provided by California regulators.
At the close of business that day, Silicon Valley Bank had a negative cash balance of about $958 million.
“People were shocked at how stupid the CEO was,” said a Silicon Valley bank insider. “You’re in business 40 years and you’re telling me you can’t raise $2 billion personally? Get on a jet and fly to Kuwait like everyone else and get them to take over a third of the bank.”
Silicon Valley Bank did not respond to requests for comment, but Baker reportedly apologized to employees about the situation.
“It is with an incredibly heavy heart that I come here to deliver this message,” Baker said in a video message to staff on Friday, according to Reuters. “I can’t imagine what’s going on in your head and you know about your career, your future.”
Jeff Sonnenfeld, CEO of Yale’s Chief Executive Leadership Institute (CELI), told CNN that he agrees that the Silicon Valley bank’s leadership should be criticized for its “tone-deaf, misguided executions.”
“Someone lit a match and the bank said, ‘Fire!'” – seriously pulling the trigger on transparency and integrity, Sonnefeld and Steven Tian, CELI’s director of research, said in an email to CNN on Sunday.
Not only did Sonnenfeld and Tian announce the $2.25 billion capital increase Wednesday night, but Silicon Valley Bank had enough capital to exceed regulatory requirements, but said there was no need to disclose the $1.8 billion loss at the same time.
The one-two punch “understandably caused widespread hysteria in the rush to attract deposits,” the two wrote, adding that they could have extended the announcements by a week or two and scaled them back.
After the administration announced on Sunday that it had bailed out Silicon Valley bank depositors in a big way, President Joe Biden said US authorities would closely investigate all parties involved in the bank’s collapse.
“I am committed to holding those responsible for this mess fully accountable and to our efforts to regulate and regulate the big banks so we will never be in this position again,” Biden said in a statement.
The role of the Federation
Sonnenfeld and Tian, for their part, argue that Jerome Powell, Biden’s pick to lead the Federal Reserve, and his colleagues deserve at least some of the blame.
“There should be no mistake that the failure of Silicon Valley banks is a direct result of the Fed’s continued and excessive interest rate hikes,” he wrote.
why? Because the Fed’s war on inflation has depressed both Silicon Valley bank bond prices and the value of capital and technology startups.
In fact, Silicon Valley Bank had more than a year to prepare for both cases.
A Silicon Valley bank insider called the mismanagement of the bank’s balance sheet leading up to last week “stupid” and questioned the CEO and CFO’s strategy.
Still a Wall Street veteran, the employee emphasized his belief that the failure of the Silicon Valley bank was caused by a mistake, not a mistake.
“The sad thing is that this place is a Boy Scout.” “They made mistakes, but these are not bad people.”