From NASDAQ IPOs to Silicon Valley Bridge Bank Collapse

No one could write a better movie plot than this March’s actual occurrences. For some, those are life-changing events, and for others a great case study. Like a stone hitting the water, we only now start seeing the ripples and feel how this one single event is affecting the entire pond.

Stride alongside us and discover March’s highlights. Who got issued? Who withdrawn? What caused the collapse and how will it affect everyone else? Here’s everything:

The Ins The Outs
About 12 companies were issued to NASDAQ this March, the most dominant one is Atlas Energy Solutions Inc. (AESI) with a $324M offer amount and an $18 share price. AESI was established in 2017 and is one of the leading providers of proppant and logistics services to the oil and natural gas industry within the Permian Basin of West Texas and New Mexico. They define their core mission as maximizing value for their stockholders by generating strong cash flow and allocating capital resources efficiently.

A small amount of 3 companies withdrew from NASDAQ this month, one of the lowest withdrawal numbers in the past decade. The first to withdraw was Pomelo Acquisition Corp Ltd on March 3rd, and the last was EPIEN MEDICAL, INC. on the 21st.

Read All About It

The snowball
In mid-March, a catastrophic in size event occurred: the collapse of the Silicon Valley Bridge Bank (SVB). This was the second-largest bank bankruptcy in United States history since the demise of Washington Mutual at the beginning of the 2007–2008 financial crisis.

What started this snowball was SVBs $1.25B in common stock sale announcement, the declaration was not backed in any explanation via media or in any other way. The reason for the sale was the company’s attempt in covering losses from their bond investments. Most banks invest the money deposited to them in order to make a profit, the most common investment that is considered very safe is investing in bonds. Long-term bonds such as Commercial and residential relay and subjected to the (US) interest rates — those were fairly low for a long time. Read Article.

Recently as the interest rates began to rise, the bond value plummeted and SVB decided to raise some cashflow until the interest rates will balance once more. This action wasn’t unprecedented and if the rates would decrease in the long run the bonds could theoretically become profitable again. The problem was that this action of selling so many common stocks at once wasn’t backed up by explanatory acts to decrease panic — and panic did rise. Watch Video.

The customers of SVB aren’t common folk but companies and more accurately start-ups. Fear took the driver’s seat and the largest cash run in the history of the US began and SVB collapsed into bankruptcy almost overnight. The Federal Deposit Insurance Corporation (FDIC) went into full damage control and took ownership to make sure this situation did not escalate further. Read Article.

The damage control

The first action FDIC did was suspense trading in SVB stock, secondly, they reassured all companies with insured funds that the insurance will be covered. Thirdly, because SVB was insured by FDIC they took ownership of any checks and loans and declared that after further assessment all non-insured funds will receive a receivership certificate — which means they might receive future dividends. Read Article.

A few days after the crisis started to snowball, the Biden administration was finally ready for action, they wanted to make sure the American citizens remain confident in the banking system. The result was full coverage of SVB’s debt to their clients, un-insured funds included — everyone could now go, receive, and manage their money. Read Article.

The after effects

This event made many other banks reconsider their investment and status and try and retain from collapsing as well. The panic needed a cap and although many media described the beginning of a domino effect, the reality showed that much was learned from the 2008 crisis. Although the interest rate keeps on rising if a cash run will be prevented, the banks can potentially overcome this.

In the political field, the crisis had its critics so Biden’s competitor Donald Trump began to describe the faults and how they should have been avoided while ignoring his arrest claims. Furthermore, on March 26th, Trump arranged a rally in Texas calling for all rights raising many of his controversial opinions, and gave free T-shirts with the words “God, Guns, and Trump”. Read Article.

On March 27th FDIC declared that First–Citizens Bank & Trust Company will cash in for all deposits and loans of Silicon Valley Bridge Bank. That means that First Citizens will receive all SVB branches as well as clientele and in return will pay a discounted price of around $72B. This turn of events will benefit both sides, the US government won’t have to deal with this matter anymore, and First Citizens will enjoy a huge profit possibility with a large active clientele.

Final note

The events of SVB should be addressed in every business and finance study. It is a great case study to describe a badly managed situation, how escalation can suddenly occur, and how to deal with a crisis and de-escalate with precision.

This is a good example of how financial crises should and should not be addressed, as well as the importance of media control in situations like this. Some things might seem obvious to professionals but for others, they can be perceived completely differently, understanding that can make the difference between an event to a catastrophe.

Commonly there are many complaints about government interference with privately held companies. Yet now it is clear why active government management and supervision should be implemented in fields that might hold harsh repercussions. In this case, the FDIC interference was a blessing as most businesses involved were saved. Start-ups that have fragile funds management could potentially suffer the most, yet the FIDC’s actions and funding saved many of them from closing.

As for the investors, give strong attention to banks’ stocks, look around, and decide which you think derailed but will rise again. Strong and large banks don’t often lose value so for the more risky investors it’s a great opportunity to capitalize on this decrease. For the more cautious investor, you might be invested in some bonds as they are considered safe — so let this be a lesson to always make your portfolio with as much variety as possible to prevent significant loss no matter what.

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