Federal Government Has 48 Hours to Fix ‘Irreversible Mistake,’ Billionaire Says

Home Depot founder notes that SVB collapse should be a 'wake up' call

CEO and Portfolio Manager Pershing Square Capital Management L.P. William Ackman speaks at The New York Times DealBook Conference at Jazz at Lincoln Center in New York on Nov. 10, 2016. Bryan Bedder/Getty Images for The New York Times

Several billionaires issued warnings over the weekend after the Silicon Valley Bank suddenly collapsed late last week and forced the federal government to step in.

Billionaire investor Bill Ackman wrote Saturday that the federal government had about two days to fix the problem—by Monday morning. He noted that a number of depositors may not see their money because it wasn’t insured; the Federal Deposit Insurance Corporation (FDIC) notes it insures $250,000 per depositor, per insured bank for each account.

The shuttering of the bank, known as SVB, was announced by the FDIC, marking the worst failure of an American financial institution since 2008.

“The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake,” Ackman posted on Saturday morning. “The giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs),” he wrote, adding that more “withdrawals will drain liquidity from community, regional, and other banks and begin the destruction of these important institutions.”

Before Friday’s collapse, SVB was one of the top 20 largest banks in the country, sparking fears that its failure could trigger contagion that would impact other financial or technology companies. The bank failed as depositors rushed to withdraw their money over concerns about the bank’s status and as the firm’s stock prices cratered by 86 percent this week.

“Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week,” Ackman, the billionaire founder and CEO of hedge fund Pershing Square Capital Management, warned on Twitter. “Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection.”

Ackman said that the federal government should have gotten involved quicker because the bank’s collapse could reverberate across the U.S. economy and banking sector at large.

“SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs,” Ackman wrote.

With $209 billion in assets, the Santa Clara, California-based lender was the 16th largest U.S. bank, making the list of potential buyers who could pull off a deal over a weekend relatively short. The White House said on Saturday that President Joe Biden had spoken with California Gov. Gavin Newsom about the bank and efforts to address the situation.

Some analysts and prominent investors warned that without a resolution by Monday, other banks could come under pressure if people worried about their deposits.

“The good news is it is unlikely an SVB-style bankruptcy will extend to the large banks,” risk and financial advisory firm Kroll said in a research note. However, small community banks could face issues and the risk is “much higher if uninsured depositors of SVB aren’t made whole and have to take a haircut on their deposits,” Kroll added.

Other Warnings

In a Sunday morning appearance on Fox News, Home Depot co-founder Bernie Marcus said that the bank’s collapse should be a “wake up” call for many Americans about the state of the U.S. economy.

“Maybe the American people will finally wake up and understand that we’re living in very tough times, that, in fact, that a recession may have already started. Who knows? But it doesn’t look good,” Marcus told the outlet.

He added: “I feel bad for all of these people that lost all their money in this woke bank. You know, it was more distressing to hear that the bank officials sold off their stock before this happened. It’s depressing to me. Who knows whether the Justice Department would go after them? They’re a woke company, so I guess not. And they'll probably get away with it.”

“The Fed keeps raising rates and inflation keeps going in the wrong direction. It’s not staying where it should be. People are struggling. People can’t pay their bills. They can’t fill their tanks with gas. And if you think that’s a good sign, I don’t think it is. And we have an administration that’s obtuse to this. They just keep talking about the great times and how good it is. It’s not good,” Marcus told the outlet.

Reuters contributed to this report.