Uncle Sean's Update - 3/10/23

Happy Friday!!!
 
Fintech | Banking | Data – it’s what we do.  Here is the Uncle Sean Update for 3/10/23:
 

• It’s been a tumultuous week in the banking sector – I’m not happy about reporting on any of this, but it has dominated the news all week.  So let’s jump right in and take a look at what happened (spoiler alert – deposit concentration risk is bad):
  • Silvergate (NYSE: SI; BHC FR 3695667; Bank Sub is Silvergate Bank – FDIC 27330; $11.4B Total Assets as of Dec 2022) announced this week that they will voluntarily liquidate the bank after a massive runoff in deposits from the crypto sector stemming from the FTX collapse.  I won’t take anymore time on this one as we have been reporting about Silvergate for a couple of months.
  • In an extremely rapid turn of events – almost overnight, Silicon Valley Bank (NASDAQ: SIVB, FDIC 24735; $209B Total Assets as of Dec 2022) was closed by regulators.  This is the second largest bank failure of all time behind Washington Mutual back in the heart of the financial crisis in 2008.  Here is the chain of events:
    • Late Wednesday, SVB announced a proposed equity capital raise of about $2B (further diluting shareholders) as well as the sale of essentially all of their AFS securities portfolio resulting in a hit to regulatory capital of $1.8B post-tax benefit.  They posted a mid-quarter update showing +$450M improvement in annualized NII after rebalancing the securities portfolio and capital raise with approximately $180B of available liquidity.
      • The liquidity driver was driven by a bleed off of deposits from their customer base (VC backed companies having higher cash burn in our current environment).  Worth noting that SVB non-interest bearing deposits went from $121.7B in Dec 2021 to $79.4B in Dec 2022 (source: FedFis bank call report data).
    • Per this TechCrunch article, SVB CEO Greg Becker held a call with venture clients telling them their assets were safe and the bank had ample liquidity “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” The executive asked VC clients to “stay calm…”
      • Uncle Sean moment here - If you have EVER been in a heated discussion (i.e. argument) with your spouse or significant other, you know that saying “stay calm” is like trying to put out a fire by pouring gasoline on it…  😲 
    • Of course it did not work (I know – shocking, right?!?!) and there are several reports that venture firms were advising their portfolio companies to move money out of SVB.  And that is how the bank run started.  By Friday morning, CNBC reported that the equity funding fell through, stock price was down 80+% for the week, pre-market trading had been halted, and SVB was seeking a buyer.  Deposit outflows were outpacing the sale process; and a few hours later the bank was closed by regulators that same morning.
  • More Uncle Sean op-ed here…  There may be more information in the coming weeks, but both of these scenarios are not your garden variety bank failure.  The speed in which all of this unfolded was shocking.  There has been a ton of reporting related to mismatched ALM and AFS securities portfolios with unrealized AOCI losses – and all of that has some merit.  But let’s be honest.  A $2B hit to SVB with $210B in Assets, $13B in cash, and $15B in equity is NOTHING – that is not what caused this failure….  This was a panic induced bank run that was promulgated by deposit concentration risk within VC and VC portfolio companies.
    • “Niches to Riches” doesn’t work well on the regulatory banking side when you have industry specific deposit concentration risk...  Or, maybe I should phrase it as, “it works great right up to the point that it doesn’t – then it the becomes catastrophic.”  Diversification is key to liquidity whether it is deposits, loans, or industry concentrations.
    • Uncle Sean certainly hope the best for all people impacted by these two unfortunate events.

 

• Ugh - a couple more pieces of bad news….
  • Catch (payroll and benefits platform for self-employed) announced they are shutting down.
  • The NCUA announced that they liquidated Inter-American Federal Credit Union (charter #16285; $727K Total Assets; 460 members) due to unsafe and unsound practices.

 

• Alright - now that we have the bad news out of the way, here is some GREAT news…  Look at CSI flex their muscles by announcing a record setting year signing 33 new core banking agreements, a 30%+ increase over the companies previous record, pushing their US market share up to 10%.  NICE WORK!!!!  😊

 

• HM Bradley selects NYCB (division of Flagstar Bank) as their new sponsor bank and also partnered with Thought Machine to provide real-time ledgering.

 

• Step (teen banking and credit builder app) launches stock investing powered by Drivewealth, LLC.

 

• InvesTex Credit Union (Charter 67637; $241M Total Assets) based in Humble, TX converts from NCUSIF to private share insurance from American Share Insurance (ASI).

 

• ICE and Black Knight find a buyer for Empower as the FTC takes action to block their merger stating it would harm competition and lead to higher costs.  ICE responded stating they strongly disagree and will vigorously oppose the FTC’s challenge of ICE to acquire Black Knight.

 

• Fifth Third Bancorp (NASDAQ: FITB; FDIC 6672) to acquire Big Data Healthcare a technology solutions provider for healthcare payments and remittance.

 

• Notable FinTech funding for the week:
  • Synctera (BaaS middleware/connector platform) raised $15M in capital and partners with National Bank of Canada.
  • Droit (reg compliance platform for big banks) $23M in Series B funding round.
  • FilmHedge (financing for film and television productions) raised $5M in Series A plus a $100M credit line.
  • Candidly (student debt and savings platform) raised $20.5M in Series B round following record growth of 10X revenue.
  • Banyan Infrastructure (project finance software for banks, investors, and developers in the renewable energy space) announced $25M in Series B funding round.

 
 
Random Uncle Sean Stuff:

• It’s daylight savings time this weekend so don’t forget to set your clocks forward 1 hour on Sunday, March 12, 2023 at 2:00AM for those states that recognize it.
• Speaking of March 12th….  Happy Wedding Anniversary to Aunt Patty for putting up with Uncle Sean’s antics for 29 years now!  Poor girl…  LOL!!!!  😝
• Lastly, here are some safety tips for driving in the snow from one of my friends up North:
  • Install winter tires
  • Drive South
  • Continue until you see sand and palm trees
  • Apply brakes & sunscreen

 
 
Have a GREAT weekend and please stay safe!!!
 
Uncle Sean
 
 
Sometimes known as Sean Mayo – contact me directly for scope and pricing of custom reports / analysis projects at smayo@fedfis.com | 214-604-6961 – or you can contact FedFis Sales Team at 512-960-0911 | info@fedfis.com #FedFisHasTheData FedFis
 
FedFis, LLC disclaimer – The views and opinions of Uncle Sean are of his own and may not necessarily represent the views, endorsements, and/or opinions of FedFis, LLC – we all know he’s a little bit different; but that’s why we love him.