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Silicon Valley Bank collapse and how it affects Swedish Financial Market?

Published by Karl Martin Karus in category Articles on 14.03.2023
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What happened to Silicon Valley Bank?

The news out of California that authorities shut down Silicon Valley Bank (SVB) on Friday stunned the tech startup and venture capitalist worlds, with the market erupted by Saturday due to the sudden collapse over the course of two days.

SVB, the 16th largest bank in the United States but vital to the startup community, was closed down by regulators on Friday after a bank run dealt it a fatal blow following attempts to recover deposit losses and the sale of treasury bonds and securities.

Who were SVB’s clients?

As the only publicly traded bank focused on Silicon Valley and tech startups, SVB was deeply embedded in the US startup scene. According to its website, it has done business with nearly half of all US venture capital-backed startups and 44% of US venture-backed tech and healthcare companies that went public last year.

The more prominent household names it has served are Pinterest Inc., Shopify Inc., and cybersecurity firm CrowdStrike Holdings Inc.

Other popular companies who are affected Silicon Valley Bank collapse are:

  • Roku – The company, which has built a brand on low-cost streaming devices, said in a filing that it had $487 million of its $1.9 billion in cash at Silicon Valley Bank as of Friday, accounting for about 26 percent of the firm’s money.
  • Circle – Circle, a payments technology company, tweeted on Friday that $3.3 billion of its USD 40 billion Coin (USDC) cryptocurrency reserves remained at Silicon Valley Bank.
  • Roblox – the California-based online gaming platform with metaverse ambitions, disclosed in a filing with the Securities and Exchange Commission on Friday that about 5% of its $3 billion in cash as of Feb. 28 was held at Silicon Valley Bank.
  • BlockFI – According to a new bankruptcy filing, the defunct crypto lender BlockFi has $227 million at Silicon Valley Bank.

How does the SVB collapse affect Sweden and its financial market?

The fallout from Silicon Valley Bank has spread to Sweden’s largest pension fund, which has more than doubled its stake in the Californian bank in the last year.

Sweden’s largest pension group at risk?

According to Bloomberg data, Stockholm-based Alecta, which manages more than $104 billion in assets, was SVB’s fourth-largest shareholder at the end of last year, with a stake worth $605 million. Following a 60% drop in SVB’s stock on Thursday, the stake was only worth $279 million.

Alecta is the fifth largest shareholder in First Republic Bank, which it acquired near the end of last year, and the sixth largest shareholder in Signature Bank. On Thursday, both of these banks suffered significant one-day losses.

Alecta comments:

“The holding represents less than 1% of our assets and will have no impact on our solvency metrics,” said Jacob Lapidus, Alecta’s head of communications, who confirmed the pension fund has increased its SVB holding since becoming a shareholder in 2019.

The news comes just two days after Alecta told local media that it had sold its entire stake in Svenska Handelsbanken AB, one of Sweden’s most conservative lenders, after 71 years. Carina Silberg, the pension group’s head of governance and sustainability, told the Swedish newspaper Dagens Industri that the pension group was focusing on American niche banks rather than traditional lenders.

Worst case scenario?

The risk is contagious, which means that this failure could strain the financial system, spark greater instability in the industry, and cause more institutions to fail. Although prominent Wall Street figures believe this is unlikely, investors sold off equities on Friday for safer investments.

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Gold price (XAU-SEK)
24955,00 SEK/oz
  
+ 43,90 SEK
Silver price (XAG-SEK)
336,13 SEK/oz
  
+ 12,07 SEK

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