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The collapse of Silicon Valley Bank was a “Lehman moment” for the tech industry, in accordance with Summit Goldman Sachs trader.
Cliff Marriott, co-head of technology, media and telecommunications Europe at Goldman Sachs’ investment banking division, said the March 10 shutdown of SVB was “pretty stressful” because the lender’s clients struggled to determine the way to money in on payroll.
“This primary weekend was a bit like a Lehman moment for tech, and it was really more operational for these corporations,” Marriott told CNBC’s Arjun Kharpal.
“They needed access to capital. Many of their balances were on the SVB. And secondly, the SVB drove and made many payments to employees’ payrolls.”
Founded in 1983, SVB was considered a reliable source of funding for tech start-ups and enterprise capital firms. A subsidiary of SVB Financial Group, a business lender based in California was at one point the sixteenth largest bank within the US and the biggest in Silicon Valley in terms of deposits.
SVB was acquired by the US government after its clientele of enterprise capitalists and tech startups withdrew billions from their accounts. Many VC funds advised portfolio corporations to withdraw funds attributable to fears that the lender might fail.
SVB Financial Group’s holdings – assets corresponding to US Treasuries and government-backed mortgage securities that were considered secure – were hit by the Fed’s aggressive rate of interest hikes and their value plummeted.
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Earlier this month, the corporate revealed it had sold its $21 billion price of securities at a loss of about $1.8 billion and said it needed to boost $2.25 billion to satisfy customer needs and fund latest loans.
SVB’s future stays uncertain, regardless that deposits were eventually blocked by the federal government, and SVB’s government-appointed CEO tried to reassure customers that the bank remained open for business.
Marriott said “there’s still a big query mark over what bank, company or group of corporations will replace SVB in terms of providing tech-like utility services, giving them bank accounts, allowing them to do payroll, keeping their money balances.”
SVB’s collapse has also raised questions on the potential implications for other banks, with SVB not the one lender under pressure. Swiss investment banking titan Credit Suisse was bailed out by its important rival UBS in a government-backed discount deal last week.
Marriott also addressed its tech IPOs and their 2023 outlook. The European tech IPO market has largely shut down attributable to a combination of market pressures, including higher rates of interest, which make the longer term money flows of high-growth corporations technology are less attractive.
Marriott said it will have been more optimistic about a tech IPO revival two weeks ago.
“I still hope to see a tech IPO in 2023. And if it doesn’t, I believe 2024 will probably be a big 12 months for tech IPOs,” Marriott said.
“I believe we’ll see the more profitable established corporations come first, so easier to grasp business models, profitable corporations before we see the really highly valued gain or negative corporations that we have seen in 2021.”
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