Regulators shut down Silicon Valley Bank (NYSE: SIVB) in the second largest US bank failure in history. The bank held $209 billion in customer deposits, making it the 16th largest bank in the US. Nasdaq halted trading on the stock and most analysts expect the equity to be worth zero. The stock dropped from $267 on Thursday to $39.38 in extended hours trading Friday.
94% of the company’s deposits are not FDIC-insured, meaning that the FDIC is not expected to step in and make customers whole. This means there is a chance these companies can lose some or all of this cash, or potentially wait a very long time to get it back.
Some of the notable publicly-traded companies caught in the Silicon Valley Bank mess
- Roblox (NYSE: RBLX) holds about $150 million, or 5% of the company’s cash balance at the bank
- Roku (NASDAQ: ROKU) holds about $487 million or 26% of the company’s cash balance at the bank
- Etsy (NASDAQ: ETSY) halted sellers withdrawals on their platform. They didn’t file an 8-K with the SEC so its unclear how much cash they hold at SVB.
- LendingClub (NYSE: LC) holds about $21 million, or about 2% of its cash balance at the bank
- iRhythm Technologies (NASDAQ: IRTC) holds about $55 million, or 26% of its cash balance at the bank.
Silicon Valley Customers List: Full List of Stocks
This list is only confirmed customers of SVB — companies that filed 8-Ks with the SEC, or have been verified through other reporting like reputable news sources. Companies rumored to bank with the company are not on this list. Below this table, we’ll discuss companies that are heavily rumored to be clients that have not yet an 8-K with the SEC.
|Company Name||Ticker||Cash in SVB||% of Cash in SVB||SEC Filing Link|
|Bill.com||BILL||$300m + $300m customer cash in trust||11%||Source: Barrons|
|Gingko Bioworks||DNA||$74m||6%||SEC Filing|
|iRhythm Technologies||IRTC||$55m||26%||SEC Filing|
|Sangamo Therapeutics||SGMO||$34m||11%||SEC Filing|
|Rocket Lab||RKLB||$38m||8%||SEC Filing|
|SEP Acquisition||SEPA||$1.2m||100% of operating |
cash, 0% of trust
|Protagonist Therapeutics||PTGX||$13m||6%||SEC Filing|
|Juniper Networks||JNPR||<1%||SEC Filing|
|Quotient Technology||QUOT||$0.4m||<1%||SEC Filing|
|Generation Bio||GBIO||$3-$7m||4-8%||SEC Filing|
|IGMS Biosciences||IGMS||<$5m||<3%||SEC Filing|
|x4 Pharmaceuticals||XFOR||$2.3m||2.5%||SEC Filing|
|aTYR Pharmaceuticals||LIFE||<$1.5m||<2%||SEC Filing|
|Eiger Biopharma||EIGR||$8m||7%||SEC Filing|
|iTeos Therapeutics||ITEO||$7.5m||1%||SEC Filing|
|Shattuck Labs||STTK||$2m||<1%||SEC Filing|
|Landos Pharmaceuticals||LABP||$2-$5m||10-15%||SEC Filing|
|Praxis Precision||PRAX||<$20m||<20%||SEC Filing|
|Mirum Pharmaceuticals||MIRM||<$2m||<2%||SEC Filing|
|Kymera Pharmaceuticals||KYRM||$2.2m||<1%||SEC Filing|
|Rapt Pharmaceuticals||RAPT||$2m||1%||SEC Filing|
|Repare Therapeutics||RPTX||<$7m||<2%||SEC Filing|
|Treace Medical||TMCI||<$10m||<10%||SEC Filing|
|Enanta Pharma||ENTA||<$12m||<5%||SEC Filing|
|io Biotech||IOBT||<$1.5m||<1%||SEC Filing|
|Atara Pharma||ATRA||<$2m||<1%||SEC Filing|
|Viridian Therapeutics||VRDN||$2-$5m||~1%||SEC Filing|
|IVERIC bio||ISEE||$2-$5m||<1%||SEC Filing|
|Wave Life Sciences||WVE||$1.5m||1%||SEC Filing|
|Vera Therapeutics||VERA||$1.5m||1.2%||SEC Filing|
|Syros Pharma||SYRS||$3.1m||1.5%||SEC Filing|
|Axsome Therapeutics||AXSM||Unclear||Unclear||SEC Filing|
Because SEC filings don’t come out on the weekend, this is the most up-to-date information until Monday morning. As companies continue to file next week, this post will be updated with the new companies affected.
However, if you’d like to track the developments on your own, monitor this EDGAR search.
Additionally, there’s a number of companies that haven’t confirmed or denied a relationship with the bank, but are suspected to have some assets at the bank for one reason or another.
Companies like ZipRecruiter (NYSE: ZIP) and Datadog (NASDAQ: DDOG) are highlighted on Silicon Valley Bank’s Client Stories page. However, neither of these companies made SEC filings to notify the market of their exposure or lack thereof.
List of Hedge Funds With Big Holdings in Silicon Valley Bank (SIVB)
Silicon Valley Bank (NASDAQ: SIVB) had a market cap of roughly $16 billion right before the news of its insolvency started coming out. So it should come as no surprise that several hedge funds own the stock.
Anytime a stock runs into doomsday mode overnight (as SIVB did), it always creates tremors in the market. Consider an example stock ABC Example Co. ABC is trading at around $100/share with a $20B market cap. Lets pretend there’s a hedge fund that owns 4.9%, or roughly $1 billion in ABC. Should ABC go to zero overnight, the hedge fund with that massive holding will need to liquidate some of its holdings to raise cash. So you’ll often see a ripple effect in that hedge fund’s larger holdings as traders try to front-run the hedge fund’s sales.
And you saw this on display in the GameStop/AMC/Bed Bath and Beyond saga. Funds that were caught short had the other stocks in their portfolio front-run by the market as traders expected them to sell.
So there’s always value in seeing who is potentially caught out.
We can safely ignore firms like Vanguard, BlackRock, State Street, Invesco etc. These asset management firms don’t actually own the shares, they’re held in a trust as part of an ETF, mutual fund, private wealth management account, etc.
We can also ignore market making firms like Citadel, Two Sigma, Renaissance Technologies, etc. These firms are in and out of thousands of stocks everyday. They might own 4% of the shares outstanding at noon and by the market open the following day. They just happened to own shares when they prepared the 13F.
With that out of the way, these are the hedge funds that I found most interesting as big holders of Silicon Valley Bank (NYSE: SIVB) stock. Keep in mind that the percentage of portfolio metric here refers to the market value as a percentage of the firm’s portfolio at the time of filing, which is December 31, 2022.
Also, 13F filings don’t represent an entire portfolio. Bonds, short positions, and foreign securities don’t have to be reported.
So keep in mind that we’re looking at a very fuzzy picture here. The hedge fund could have a much larger portfolio full of bonds, short positions, foreign stocks, etc. They also could have exited or trimmed their position since filing the 13F. So take this information with a grain of salt.
Without further ado, let’s take a look at the hedge funds most exposed to Silicon Valley Bank (NASDAQ: SIVB):
|Hedge Fund Name||% of Portfolio (as of 12/31/22)||Market Value (as of 12/31/22)||Shares Held (as of 12/31/22)|
|Azora Capital LP||8.55%||$56,566,341||245,791|
|HST Ventures LLC||7.51||$10,636,380||46,217|
|Alecta Tjanstepension Omsesidigt||3.58%||$605||2,633,100|
|Mirova US LLC||3.32%||$165,464,216||718,972|
|Rhino Investment Partners LLC||3.32%||$7,698,000||33,450|
|Sound Shore Management||3%||$79,684,364||346,243|
I only chose to highlight funds that had more than 3% of their assets invested in SIVB. If you’d like to see the full list, check out this WhaleWisdom link. That’s where I got the data.
Of these, Azora Capital is definitely the most interesting of the bunch. Obviously because they hold 8.5% of their portfolio in SIVB equity, but also because its a long/short hedge fund entirely focused on financial stocks.
So the key thing to note here is that it’s a long/short fund. That means two things, one, SIVB is definitely not 8.5% of the portfolio. Remember, short positions aren’t reported on 13Fs, meaning the fund is probably at least 30-80% larger than the 13F implies it is. And two, the unreported short positions at least somewhat reduced the cushioned the decline in Azora’s portfolio.
But Azora’s top longs are interesting, with SIVB being its biggest position, but also featuring names like Schwab (NYSE: SCHW) and Webster Financial (NYSE: WBS) declining significantly on the week.
It’s hard to know how the fund’s returns are looking right now, because the fund could come out okay if it had some good short positions on. However, it’d be hard to see how that could overcome your top long position getting zeroed out while your other top positions all declined between 5% and 20%+ on the week.
Another interesting fund is Alecta Tjanstepension. It’s a giant Swedish pension fund, the 5th biggest pension fund in Europe. Of course, being a Swedish company, you’d expect the majority of its holdings to be within Swedish and European stocks, so the 3.58% number is definitely not accurate when viewed within the lens of its entire portfolio.
But it is interesting nonetheless. Notably, the fund also has a decent stake in Signature Bank (NYSE: SBNY), another bank caught in this mess, which saw its stock decline 37% on March 10.
How Did Silicon Valley Bank Fail?
Let’s think about the business of a bank first. There’s a classic saying in banking — 3/6/3: borrow money at 3%, lend it at 6%, and be on the golf course by 3 pm. This is an outdated model of how modern banking works, but its illustrative of the core of banking.
Banks borrow short-term money at low rates and lend it out for longer durations at higher rates. The spread between the interest paid on the short-term loans and that received from long-term loans is a bank’s margin.
Finance guys call this concept the net interest margin. It’s basically a measure of how good a bank is at borrowing for cheap and lending at high rates.
This brings us to the idea of a yield curve. Traditional financial theory says that longer-term debt should carry a higher interest rate than shorter-dated debt. Obviously, the longer-term the debt, the higher the risk of nonpayment, inflation, or a change in interest rates is.
To visualize this, we can look at a chart of a yield curve, which just tells you the interest rate for different loan durations. To keep things simple, we’ll use the US Treasury yield curve, which shows the different interest rates offered by different durations of US government bonds.
For instance, below is the US Treasury yield curve in 2005. Makes logical sense, right? The longer the loan, the higher your interest rate will be.
Fast forward to today. Inflation forced the Federal Reserve to hike interest rates. But something interesting happened. Short-term US government bond yields went higher than long-term government bond yields.
In other words, you get a higher interest rate for investing in a shorter-term bond. Intuitively, this doesn’t make a lot of sense. But think about it. If long-term bond yields are lower than short-term yields, maybe the market is telling you something. Maybe bond traders think that in the long-term, interest rates will go back down and only stay at today’s elevated rates in the short-term.
This concept is called yield curve inversion. And all you need to know is that it’s pretty bad for banks. After all, we know that banks make profits by borrowing cheap short-term debt and lending it out long-term for higher interest rates. When the yield curve inverts, short-term debt actually becomes more expensive, making running a bank very difficult.
This brings us back to Silicon Valley Bank. The company was essentially “short” (like short selling a stock) short-term yields, because they were making aggressive short-term loans to startup companies in the Silicon Valley area. In the meantime, they were investing cash they didn’t loan out in long-dated bonds.
But there’s plenty of banks out there that don’t look like they’re on the brink of collapse. Why did this only kill them?
There’s two more primary reasons for the company’s failure.
The first is the company was too aggressive in its lending practices. Banks, at their core, are risk managers. If a bank offers you a 10% interest rate, they think, to simplify, that your annual likelihood of defaulting is lower than 10%. They view it as a good bet. Good bankers try to make loans at a higher rate than a perfectly efficient market would dictate.
Silicon Valley Bank did the opposite. They offered high-risk startups in the tech and biotech spaces tons of loans at interest rates that were simply too low to compensate the bank for the risk they were taking. As many expected, plenty of SVB’s customers defaulted as economic conditions tightened.
But the thing that really kicked the whole bank run off was SVB selling its bonds at a loss. It was a signal to the market that the SVB strategy has failing big time. So depositors took their money out of the bank in fear. Others followed until it gained enough momentum to start an actual run on the bank.
Parker found his passion for markets through a high school investing contest. For the past 18 years, he has been analyzing companies and following markets closely.