A Silicon Valley Bank CEO Sold $3.5 Million in Shares Just Two Weeks Before the California bank collapsed

Two weeks before SVB Bank collapsed, a top executive sold $3.5 million worth of shares - raising questions about whether the CEO and CFO knew about its impending demise. This sale likely raises new doubts about the bank's stability.

SVB had been a prominent lender to venture capital firms and tech startups. Its collapse, which has triggered the biggest US bank collapse since 2008, serves as yet another reminder of how fragile the technology sector has become.

SVB’s Financial Statements

SVB served as the bank that provided seed capital to many tech startups and served as a bridge between them and venture capitalists. Hundreds of companies held their operating funds with SVB, helping them raise capital or go public.

On Friday morning, Silicon Valley Bank declared bankruptcy - the biggest US banking shock since the 2008 financial crisis. As California's Department of Financial Protection and Innovation declared the bank closed, the Federal Deposit Insurance Corporation took over as owner.

Although the cause of why the bank collapsed remains uncertain, it was likely due to aggressive US central bank policies designed to suppress decades-high inflation. Since 2013, the Fed has raised rates eight times, prompting banks to sell off their low-interest bonds in an effort to stay afloat.

Ashley Tyrner, CEO of FarmboxRx - a San Francisco-based company that delivers food to Medicare patients - described the situation as 'nightmare-like.' She added that being so close to the bank had its advantages; they were our partner and held all our operating capital as well as significant debt with them, so it was like being trapped in an endless cycle. Ashley warned that this collapse should serve as a warning to other businesses in similar industries and may have significant repercussions for the economy as a whole.

She expressed uncertainty as to the extent of damage the bank's failure would do to the startup market, but anticipated a surge in investment into technology startups. "We have an entirely new wave of investors," she told RTVI, "and we are seeing an incredible amount of money flowing into IT."

Investors have expressed concern that SVB's demise could be a precedent for other startups and venture capital firms undertaking risky operations. "What will happen if a bank doing similar things as SVB does collapse?" asked RTVI commentator Yegor Susin.

SVB was one of the largest lenders to venture capital firms in the US, playing an influential role in the growth of the US start-up market. Additionally, it invested heavily in cryptocurrency through partnerships with Binance and Coinbase. SVB's collapse has raised concerns about both cryptocurrency's future as well as that of startup ecosystems worldwide.

SVB’s Investor Relations

Greg Becker, CEO of Silicon Valley Bank, has long been an advocate for technology companies. During his tenure with the company he has spearheaded various initiatives to promote diversity and inclusion within SVB as well as across its innovation ecosystem. Furthermore, he prioritized investments to boost economic development in the region and enhance community well-being.

After Silicon Valley Bank's abrupt collapse, thousands of tech startups are left wondering what will become of their millions in deposits, money market investments and outstanding loans. Most importantly, they need to figure out how to pay their employees.

After two days of chaos in SVB Bank, which saw people withdraw their deposits in a panic, the Federal Deposit Insurance Corporation (FDIC) was appointed by California's Department of Financial Protection and Innovation to take control. On Monday morning, all 17 branches will reopen as usual and official checks will continue clearing.

On Thursday, SVB's stock price plunged more than 50% after it was revealed that it had lost $1.8 billion on the sale of its bond portfolio. This caused many venture capitalists and founders to worry about the company's financial strength, prompting many to advise their portfolio companies to diversify their holdings or exit from SVB altogether.

On Wednesday, SVB declared it would sell new shares of stock to raise approximately $2 billion from investors after suffering a loss of $1.8 billion in the sale of its treasuries and mortgage-backed securities due to rising interest rates. The stock sale was intended to improve financial flexibility, strengthen the bank's capital structure, and create a stronger, more profitable company.

In an interview on Bloomberg, SVB's CEO described the stock sale as an effort to "reinvent the bank," with an emphasis on increasing revenue and profitability. Additionally, he noted that the bank had a long history of supporting innovation economy initiatives with an aim at improving lives of employees, customers and communities.

Tuesday morning, investors in SVB shares were uneasy as news of stock sales spread. After a brief rally, SVB's shares resumed their downward slide and fell to their lowest levels since January 1.

SVB’s Board of Directors

On Friday morning, the California Department of Financial Protection and Innovation declared Silicon Valley Bank insolvent and appointed the Federal Deposit Insurance Corporation as receiver. As a result, insured depositors will have access to their funds by Monday morning.

Silicon Valley Bank serves customers worldwide in technology, start-up, and venture capital firms through its Global Commercial Bank, Private Bank, and Capital segments. The Global Commercial Bank provides a range of commercial banking services to small to midsize businesses as well as equity and debt fund investments.

SVB's board of directors consists of nine members, including the CEO, executive vice president and CFO, director of investor relations, as well as five executive officers. The board meets quarterly for this purpose.

By 2022, SVB had grown to become the 16th largest bank in America with $209 billion in assets and $175.4 billion in deposits. Its headquarters are situated in Santa Clara, California.

At the end of 2022, SVB had an employee base of 8,528. Over the last four years, its assets increased by 63%; loans increased 114%, credit facilities rose 83% and securities appreciated 58%.

Though SVB's numbers are promising, there remains an issue with their funding diversity. Although they serve a diverse client base, much of their business comes from high-risk sectors like tech companies and venture capitalists.

Understanding a bank's funding diversification is crucial as this reflects their resilience to economic shocks and serves as an indication of their liquidity position.

Additionally, it's essential to assess a bank's balance sheet and make sure it's diversified and assets are resilient against changes in interest rates. Doing this can help determine if a bank is financially sound and safe for investing your money.

In the weeks prior to SVB's collapse, its top executives were selling millions of dollars worth of stock. CEO Greg Becker sold $3.5 million worth just two weeks before collapse, and third-in-command CFO Daniel Beck sold $575,180 worth.

SVB’s Management

At its peak, Silicon Valley Bank served as a vital financial link between the tech sector, its founders and startups, and their employees. It provided loans to hundreds of companies ranging from start-ups to high-growth venture capital-backed enterprises.

Venture debt was one of its unique lending products, designed for early-stage companies with VC backing. Furthermore, it offered a range of other banking services to assist its clients in growing their businesses.

Recent analysis of federal filings reveals that SVB's CEO sold $3.5 million worth of shares just two weeks before it disclosed extensive losses that led to its demise. Furthermore, last year the bank's CEO sold another $1.1 million worth of shares for tax purposes.

California banking regulators quickly took control of SVB, transferring its insured deposits to another institution. This triggered an exodus of money from SVB's clients which in turn resulted in a sharp drop in stock prices.

SVB's failure has also raised worries about other banks facing similar difficulties as they attempt to raise cash amid aggressive interest rate increases from central banks. Investors worry that if rates keep rising at this pace, smaller and riskier lenders may struggle more in the long run.

Meanwhile, SVB's demise has raised many questions about its leadership. Chief among them are his stock gains and decision to sell shares just days before it collapsed.

Greg Becker was a long-standing employee of SVB, serving as its president for three years prior to becoming CEO in 2011. He began his tenure with the bank thirty years ago as a loan officer before eventually moving up the ladder into the CEO role.

After his hiring, Becker began lobbying lawmakers on financial regulatory reform. He maintained that SVB had a lower risk profile than larger institutions and thus could get away with less stringent stress tests and other regulations. In fact, he testified before Congress in support of increasing the asset threshold for stronger stress tests to $250bn from $100bn. According to testimony filed with the US Securities and Exchange Commission (SEC), SVB wasn't subject to the same rules as larger banks due to its "deep understanding" of markets and strong risk management practices.