Businesses across the globe are experiencing shifts in productivity, levels of output, a decrease in supply while the demand for goods and services seems to steadily increase. How are these organizations adjusting to change? Do they see the fire before the smoke? Makes you wonder how businesses post pandemic are adjusting to change. Does the current collapse of Silicon Valley Bank an indication of poor financial management or a ghost from the past resurfacing? According to several CNBC reports “The concern: a bank run at SVB could pose an existential threat to startups who couldn't tap their deposits”. Based on reports it appears the issues surrounding the sudden demise of SVP are similar to those of the financial crisis of 2007-2008. The draw on the bank not only crippled SVP but it seems SVP went into a cardiac arrest. As indicated by the NYSE the stock reportedly closed at $530.59 on March 11, 2022. As of March 10, 2023, the NYSE reported a closing price of $106.04. Just in analyzing the steep decline in the stock price of SVP is it fair to say there were warning signs and the “Wildfire” started to grow rapidly in Santa Clara, California.? Yes. A conflagration emerged while it appears Executives went into action only after the smoke appeared. The current SVP demise is indicative of the 2007-2008 financial crisis. As a young Senior Accountant/Broker Dealer at Bear Stearns during the time of the financial crisis I distinctly recall my manager who was a very “highly qualified intellectual African American Woman with a great attention to detail” foresee the future of Bear as we called it and it wasn’t going to be pretty. She pointed out to my team and I, in the balance sheet reporting division of the firm the issues Bear may face with the stock price plummeting from approximately $171.51 in January of 2007 to $30 a share on March of 2008. She yelled fire before the smoke! If this doesn’t seem like the “ghost of old wall streets’s past” then maybe it’s the “grinch” who’s ill financial management methods triggered a draw on the bank. As a result, the venture capital companies who entrusted SVP with their deposits may experience losses beyond measure. The deposits covered by the FDIC limit of $250,000 will more than likely be distributed but what happens to those companies with an exceedingly higher investment. According to the Wall Street Journal “ The four biggest U.S. banks lost $52 billion in market value Thursday. The KBW Nasdaq Bank Index notched its biggest decline since the pandemic roiled the markets nearly three years ago. Shares of SVB, the parent of Silicon Valley Bank, fell more than 60% after it disclosed the loss and sought to raise $2.25 billion in fresh capital by selling new shares”. As a finance professional for over 20 years I wonder if SVP neglected to provide accurate financial statements. In analyzing the Balance Sheets, which are the core of an organizations financial statements, were the executives in charge of reporting the owner equity, assets, and liabilities ensuring the numbers were accurately reflected. It’s quite hard to believe there were no previous indications of potential fiscal problems based on perhaps an indication the firms assets were declining and the investments created were high risk. Yes the rise of interest rates doesn’t allow for firms to feel safe nor investors but taking a critical analysis of the debt to equity ratio would be a helpful idea. If the debt appears to be higher than the equity it’s safe to say something is amiss. It’s time to yell “Fire before the Smoke”. In all business cycles we know there’s a trough and an expansion phase. Let’s hope Silicon Valley Bank’s demise allows for sunshine after the rain.
-Professor of Economics and Financial Management, Former Bear Stearns Employee
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