SVB Collapse May be Start of ‘Slow-rolling Crisis’, Warns BlackRock Boss
By Edward Helmore
Larry Fink tells investors more ‘shutdowns and seizures’ in US possible and predicts inflation and interest rates to rise.
The collapse of Silicon Valley Bank could just be the start of “a “slow rolling crisis” in the US financial system with “more seizures and shutdowns coming”, the chief executive of the world’s largest asset manager has warned.
The CEO of BlackRock, Larry Fink, also predicted in a letter to investors and company bosses that inflation would persist and rates continue to rise, trends that both contributed to SVB’s collapse.
The failures over the past week of not only the California-based bank but also fellow US lenders Signature and Silvergate have prompted jitters across global markets. Such concerns were further fuelled on Wednesday when shares in Credit Suisse plunged to record lows after the troubled Swiss lender’s biggest investor ruled out providing it with more funding.
Fink described the situation as the “price of easy money” that was having to be paid after the Federal Reserve’s decision to start aggressively raising interest rates. “Something else had to give as the fastest pace of rate hikes since the 1980s exposed cracks in the financial system,” he said.
Fink added it was not yet clear where new victims of the “asset-liability mismatches” that claimed SVB would be found.
“It’s too early to know how widespread the damage is,” Fink wrote. “The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge.”
However, other leading financial figures warned that the instability brewing in the European banking sector could pose an even bigger threat to global market stability.
The high-profile economist Nouriel Roubini told Bloomberg news that if Credit Suisse were to collapse it could result in a “Lehman moment” – a reference to the collapse of the US investment bank Lehman Brothers in August 2007 at the start of the global financial crisis.
As I pointed out in my Bloomberg TV interview this morning the Credit Suisse crisis is a “Lehman moment” for European and global markets. “Too big to fail and too big to be saved”. It is not even clear what their various unrealized losses on securities and other assets are.
— Nouriel Roubini (@Nouriel) March 15, 2023
Despite government interventions to secure depositors of SVB and New York-based Signature, leading Wall Street figures warned that crises affecting regional or mid-size US banks may not be at an end, with further regulatory and market repercussions.
Ray Dalio, the recently retired founder of Bridgewater, said on his LinkedIn page that SVB’s failure was part of the “very classic bubble-bursting part of the short-term debt cycle”, adding: “This bank failure is a ‘canary in the coalmine’ early-sign dynamic that will have knock-on effects in the venture world and well beyond it.”
SVB was placed under government administration on Friday, with its depositors guaranteed beyond $250,000 limits to try to reassure markets.
Prosecutors and regulators have reportedly launched twin investigations into the tech-focused lender, looking at its lack of a risk management officer in the run-up to its failure and subsequent takeover by government regulators.
According to the Wall Street Journal, which first reported on the yet-to-be-announced investigations, the US department of justice and the Securities Exchange Commission will examine the events that led up to bank’s collapse, stock sales by SVB officials made in recent weeks, and its lack of a chief risk officer.
SVB had not had anyone in that position since April 2022, when executive Laura Izurieta stepped down, and January this year SVB announced it had hired Kim Olson, formerly with Sumitomo Mitsui Banking Corp.
On Monday, the UK government helped strike a deal for HSBC to buy SVB’s UK operations, saving thousands of British tech startups and investors from big losses.
On Wednesday, bosses at the London-headquartered lender called on employees at the rescued British arm of SVB to assure clients “their deposits are safe and loans are supported”.
“We’ve put close to £2bn of liquidity into SVB UK and we’re ready to deploy more cash and more liquidity, as needed,” said the memo, signed by HSBC’s group CEO Noel Quinn.