“Absolutely idiotic.” SVB Insider Says Employees Are Angry At CEO
Matt Egan
The game is on to blame those who caused the collapse of Silicon Valley Bank, and the tech sector is pointing the finger at SVB CEO Greg Becker for allowing his company to go down in history as the second-biggest U.S. banking crash ever.
One Silicon Valley bank employee, who asked to remain anonymous to speak frankly, was taken aback by how Becker publicly acknowledged the extent of the bank’s financial problems before privately seeking the necessary financial backing to ride out the storm.
This set the stage for the panic that followed as customers attempted to withdraw their money.
“It was complete idiocy,” an employee who works in the asset management department of Silicon Valley Bank told CNN. “They were very transparent. It’s the exact opposite of what you usually see in a scandal. But their transparency and straightforwardness killed them.”
Last Wednesday night, Becker and his leadership team said they hoped (but not firmly committed) to raise $2.25 billion in capital and also sell $21 billion in assets, resulting in a loss of $1.8 billion.
The news has set off a wave of fear in Silicon Valley, where the bank acts as a major lender to tech startups. Many of them panicked, losing $42 billion last Thursday alone when Silicon Valley Bank shares plunged 60%, according to California regulatory filings.
By the end of the day, the Silicon Valley bank had a negative cash balance of about $958 million.
“People are just shocked at how stupid the CEO is,” said a Silicon Valley bank insider. “You’ve been in business for 40 years and you’re telling me you can’t raise $2 billion privately? Get on a plane and fly to Kuwait like everyone else and give them a third of the bank.”
The Silicon Valley Bank did not respond to requests for comment, but Becker reportedly apologized to employees for the situation.
“It is with an incredibly heavy heart that I am here to deliver this message,” Becker said in a video message to staff on Friday, Reuters reported. “I can’t imagine what was going on in your head, and you were thinking about your work, about your future.”
“Pervasive Hysteria”
Jeff Sonnenfeld, CEO of the Yale School of Management’s Executive Leadership Institute (CELI), told CNN he agrees that Silicon Valley bank management deserves criticism for their “dull and unfortunate execution.”
“Someone lit a match and the bank yelled, “Fire!” “Turn off alarms in earnest out of a genuine concern for transparency and honesty,” Sonnenfeld and Steven Tian, director of research at CELI, said in an email to CNN on Sunday.
Sonnenfeld and Tian said not only was the announcement to unsubscribe from the $2.25 billion capital increase on Wednesday night “unnecessary” because the Silicon Valley bank had sufficient capital far in excess of regulatory requirements, but there was no need to both disclose a loss of $1.8 billion.
The one-two hit “understandably caused widespread hysteria amid the rush to pick up deposits,” they wrote, adding that they could delay the announcements for a week or two and scale down.
After his administration announced on Sunday a sweeping bailout of Silicon Valley bank depositors, President Joe Biden signaled that US officials would be closely scrutinizing all parties involved in the bank’s collapse.
“I am determined to hold the perpetrators of this mess accountable and continue our efforts to increase oversight and regulation of the big banks so that we are no longer in this position,” Biden said in a statement.
Role of the Fed
For their part, Sonnenfeld and Tian argue that Jerome Powell, Biden’s choice to head the Federal Reserve, and his colleagues deserve at least partial blame.
“There should be no doubt that the collapse of Silicon Valley Bank was a direct result of the Fed’s persistent and excessive interest rate hikes,” they wrote.
Why? Because the Fed’s war on inflation lowered both the value of the bonds the Silicon Valley bank relied on for capital and the value of the technology startups the bank catered to.
Of course, Silicon Valley Bank had over a year to prepare for both of these challenges.
A Silicon Valley Bank insider said the bank’s balance sheet mismanagement last week was “stupid” and questioned the strategy of the CEO and CFO.
However, this employee, who is a Wall Street veteran, emphasized his belief that the collapse of Silicon Valley Bank was caused by mistakes and “naivety” rather than outright wrongdoing.
“The saddest thing is that this place is the Boy Scouts,” he said. “They made mistakes, but they’re not bad people.”
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