Even as financial stocks tumbled, Michigan bankers and venture capitalists said they’re operating “business as usual” on Monday, the first business day since the collapse of Silicon Valley Bank.
Once the 16th-largest bank in the United States with about $209 billion in assets — just larger than Fifth Third Bank — the California-based lender grew by focusing almost exclusively on the startup technology sector in the Bay Area and beyond. But a series of macroeconomic factors and poor risk management practices led to the collapse of Silicon Valley late last week following an old-fashioned bank run.
Federal regulators on Sunday announced they would insure all the deposits of the bank’s customers.
But while bankers and venture investors are expressing confidence that the issues at Silicon Valley Bank — as well as New York-based Signature Bank, another lender shut down by the government over the weekend — are isolated incidents, bank stocks were down significantly Monday, triggering trading halts for a handful of banks including Comerica Bank. Analysts were less than hopeful that the industry would recover in the short term given the upward trajectory of interest rates.
“Our cautious view on the (banking) sector is informed by our view that higher for longer (interest) rates are bad news for banks,” reads a Bank of America research note released Monday morning.
The KBW Bank Index of 24 stocks plunged the most since March 2020. Large regional banks with a heavy presence in Michigan including Comerica, Huntington and Fifth Third all saw their stock prices decline by double digit percentages in mid-day Monday trading.
Beyond the banking industry, SVB’s collapse “has been a major shock to life sciences companies and the whole ecosystem in Michigan and across the United States,” Stephen Rapundalo, the president and CEO of the statewide life sciences trade group MichBio wrote Monday in a bulletin to members.
“As the second largest bank failure in U.S. history, we know a number of MichBio’s member companies are directly affected by this concerning situation. Since Friday, MichBio has been monitoring the situation and is in contact with state and federal policymakers,” Rapundalo wrote.
Rapundalo was could not say what companies in Michigan have exposure to the bank’s collapse.
Silicon Valley Bank collapsed into FDIC receivership Friday, after its long-established customer base of tech startups grew concerned and yanked deposits. At the end of last year, SVB had more than $175 billion in deposits — the vast majority of which were uninsured.
Still, industry executives say Michigan banks, in particular, are in a position to weather the storm, and that the industry-specific concentration that doomed SVB will not befall banks locally.
“Michigan banks are in a really strong position,” said Michael Tierney, president and CEO of the East Lansing-based Community Bankers of Michigan trade group.
Silicon Valley Bank’s almost exclusive focus on serving the banking needs of tech startups and venture firms wound up being a part of its downfall, Tierney noted.
“Most community banks don't have those (industry) concentrations,” he said.
Indeed, diversification has been critical to the success of Bank of Ann Arbor, said Tim Marshall, CEO of the Ann Arbor-based lender, which has about $3 billion in assets and stands as the fifth largest bank headquartered in Michigan.
Given that the bank's backyard is home base for much of the state's venture funds and tech startups, Marshall said the bank has “developed an expertise” serving that industry, via its Technology Industry Group.
The key is balance, Marshall said, noting that segment is one the bank sees as a growth opportunity.
“The strategy is not to be reliant on any one product,” he said. “It’s important to not put all your eggs in one basket, or to overload your basket.”
All told, Monday is “business as usual,” Marshall and others said.
“There’s no red alerts or red flags,” Marshall said of his view of the economic landscape. “Did I have a few calls this weekend? Of course I did. But to have a conversation about why we’re different than Silicon Valley Bank was reassuring (for clients).”
Venture capital investors on Monday were still assessing the fallout from the demise of Silicon Valley Bank, said Chris Stallman, a partner at Fontinalis Partners.
The Detroit-based VC firm co-founded by Ford Motor Co. Executive Chair Bill Ford — with a focus on transportation startups — does have portfolio companies that did business with SVB, Stallman said.
Those companies were beginning to again gain access to the deposits they had at the bank, he said.
“There’s a semblance of a return to business as normal,” Stallman said, noting the rapid pace in which the bank collapsed. “But it’s a new normal.”
Traditionally, many startups have only had one banking relationship and an emphasis going forward will be putting more redundancies in place, he said.
SVB made for an “incredible partner” to startups and the VC sector, Stallman said. One key function the bank provided was capital call lines of credit, basically a short-term loan to companies as they await capital to be transferred from their investors.
“It creates a void in the market,” Stallman said of Silicon Valley Bank, which as of Monday had not seen any potential buyers step forward.
While Stallman and other investors wait to see which financial industry players may step forward to fill in part of the void left by the demise of SVB, some level of reflection is needed in the coming days, he said.
“In the immediate, there’s a risk off. Let’s step back and check for wounds and then chart the course going forward,” Stallman told Crain’s. “Ultimately, the market stabilizes and we need to take good lessons out of this.”