What does the Silicon Valley Bank news mean for me?

First, how did the Silicon Valley Bank collapse?

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Given the news headlines surrounding Silicon Valley Bank, we want to provide you with a market
update. This should arm you with the right information and let you know our stance regarding
your financial progress.

Ultimately, we’re well-positioned and don’t recommend any action. The recent news has been quite
complex though, so I’ll do my best to update you on recent developments in clear terms without the

First, how did the bank collapse?

Silicon Valley Bank was doing well in the tech boom. It enjoyed a huge increase in deposits
following covid as the tech sector boomed, with the money held on deposit with SVB tripling
between 2019 and 2021. The bank had to put this money to work.

The size of the deposits became sizeable, so they invested a large portion in long-term bonds
earning approximately 1.56% for 10+ years. This saw positive gains for a while, as the 1.56%
the rate was above the deposit rates, but it quickly unfolded.

As interest rates increased, the amount Silicon Vally Bank paid to deposit holders grew to 4.50% per
year for start-ups. This was considerably beyond the 1.56% they were receiving on the
bonds. The assets they held in bonds also fell in value, creating a double hit.

In response, SVB tried to prop up their balance sheet by selling assets. People became
skittish and quickly withdrew their money, creating a classic bank run. SVB was left with no
liquidity and major losses, forcing them to default.

What are the salient points you need to know?

The major issues you should probably care about are below:

Do we hold any exposure to SVB in your portfolio? The bank was listed on the NASDAQ
stock exchange, so many investors had some minimal exposure to the bank via their U.S.
funds or exchange-traded funds. In our case, exposure is tiny and insignificant, so we don’t
expect a material impact directly from the SVB collapse.

Could this spread to other banks? For the majority of investors, this is the biggest question.
We’d argue that while the rapid rise in interest rates has caused some short-term losses for
the banking industry that are meaningful, they are better positioned to weather the

We also believe the regulatory response from the authorities has been quick, unified,
and substantive. In the short term, we’d not be surprised to see market volatility remain
elevated, reflecting the increased uncertainty around potential outcomes. Still, most banks
have much more diversified sources of funding and lend to a much wider range of industries.

Is it isolated to technology and crypto-related businesses?

Not necessarily, but this industry is significantly more exposed, as many companies operate with negative cashflows that require ongoing funding. If the funding dries up, this can cause severe stress.

Will taxpayer-funded bailouts occur?

The short answer is that we don’t know. Liquidity support is being offered to protect the bank’s customer base, but this has been part of the role of central bank authorities for many years and one with which they are familiar.

What portfolio actions make sense right now?

At the core, we hold a wide range of assets that are diversified by sector, and industry, and designed to navigate broad risk factors. As long-term and wisely-contrarian investors, this type of setup is one that we’d hope to begin finding opportunities, but it is worth remembering the risk taken.

Our three biggest responsibilities

In situations like this, we have three responsibilities. The first is to support you in helping you
understand what matters and what doesn’t. The second is to ensure we are monitoring risks and
investing in line with your risk tolerance. And third, we want to find opportunities to reach your
goals faster, come what may. Our actions are always oriented toward your financial plan and making
decisions consistently over time.

Please don’t hesitate to contact us with any questions about your financial situation.

You can call us on 0161 482 8285 or email us at enquiries@blackstonefm.com.

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