SVB Collapse: What's Next?

Make no mistake, Silicon Valley Bank (SVB) and their sudden default is sending shockwaves not just within the US, but around the World. Their collapse sends a nostalgic flashback to the collapse of Lehman Brothers in 2008, which marked the beginning of the great recession. 

Lehman's default was most certainly impactful, the stock market with little warning, tanked. The Federal Chair with little details, sit in disbelief as the national market crashed. Lehman's default was so impactful not because it was a sudden default, but rather, the importance of the default. Lehman held $639-billion in assets the day it defaulted or 3x the size of SVB, all gone and liquidated at an instant. Now this default, as it seems, is all reminiscent of the default that shocked the World 15 years ago. 

SVB's default, while not as significant and important as Lehman, is definitely still worth noting. When it defaulted on 10 March, it was the second largest investment bank default in history. At its core, the default boils down to a perfect storm. Poor decision making by the CEO and the Executive Team resulting in a lack of short-term company planning, all while a declining economy drags them further into a state of insolvency.

My prediction on all this boils down to the emotion driven market and the inaction (or insufficient action) by the Federal Reserve. As mentioned, SVB's swift collapse will, for at least a week, send the market into a state of panic. And the inaction of the Fed will deepen this panic. But long-term, the threat is that many companies are currently holding bonds and as the Fed increase interest rates, bond prices will fall. SVB's default may be the first of a chain of domino collapse, which is what I fear...

In October 2022, fear grew over a possible collapse of Credit Suisse, a bank once labelled as 'too big to fail'. Suisse stock price is currently sitting at a dangerous $2.20. Any further ripple from the default could send their company into bankruptcy. If Credit Suisse, a well established bank goes under, it will cause a recession much longer and worse than 2008. 

Simply put, there is no such thing as too big to fail in my opinion. Last year, Forbes ranked SVB as one of America's safest banks to invest in, their collapse proves otherwise. 

Happy Reading!