A security guard looks out the door as customers line up at Silicon Valley Bank’s headquarters in Santa Clara, California, March 13, 2023. – US President Biden tried to reassure Americans about the country’s banking system on Monday, but insisted no emergency measures would be taken. Additional banks were under stress following last week’s Silicon Valley bank failure, the second-largest bank failure in history, and New York regulators took control of signing banks on Sunday.(Photo by NOAH BERGER/AFP) (Photo by NOAH BERGER/AFP via Getty Images) *** BESTPIX ***
John Gittelson and Karen Breslau | | Bloomberg
Weather was expected to be the worst thing to hit California this week, with rain storms, flooding and the evacuation of thousands of residents.
Then came the sudden collapse of Silicon Valley Bank, California’s leading lender to the almighty tech industry and the second financial company to fail in the state in a matter of days.
US officials took steps on Sunday to boost confidence in the broader banking system, but the turmoil continued to engulf shares of other regional banks on Monday. San Francisco-based First Republic Bank fell 78%. Stocks were halted due to volatility as news of the drop and securing additional funding failed to calm investors. Beverly Hills-based PacWest Bancorp plunged 60%.
Politicians and executives in California, the world’s fifth-largest economy, scrambled last weekend to contain the far-reaching economic impact. But the damage caused by the SVB collapse has already spread beyond Silicon Valley, which counts half of US venture capital firms as clients, to other key industries in California, such as cleantech companies and wineries. increase.
read more: Silicon Valley Bank Collapse: Temporary Disaster for California or Sign of More Trouble?
Just as California is facing a broader slowdown, it will affect the Bay Area’s tech-driven economy — at the center of the state’s recent economic boom — from high-income earners boosting incomes. Tax collections are declining as the stock market falters, and Gov. Gavin Newsom forecasts a budget deficit of $22.5 billion next fiscal year.
San Francisco itself has been particularly hard hit by layoffs of technicians after the Covid-19 pandemic and delays in the return of workers and tourists to downtown. Rising interest rates have disrupted the property market, with London house prices down almost 15% over the past year, according to brokerage firm Compass Inc. “
Ken Rosen, head of real estate at the University of California, Berkeley, said the Bay Area is currently experiencing a glut of free-money eras that fueled explosive growth in speculative investments such as Silicon Valley, the tech sector, and cryptocurrencies. It says it faces widespread adjustments to the upsurge. He expects banking problems at SVB and Silvergate Capital Corp., a crypto-friendly lender that also closed last week, to be isolated, but has helped SVB grow “moving fast.” I see that the spirit of “destroy things with the help of others” has become humble. Companies like Facebook.
“It has a contagious effect,” Rosen said. “This could be the beginning of something bigger. It’s all about confidence.”
These concerns have brought together an unlikely alliance of politicians and venture capitalists — from Bernie Sanders supporter Rep. Up to Kevin McCarthy, who is a Republican. They finally got what they wanted from the Biden administration. It’s a Sunday night plan to allow Silicon Valley Bank customers to get all their money back, alleviating fears of cash shortages that are rippling across the state.
Newsom praised the Biden administration’s push for SVB depositors and said the move would have a “very positive impact” on California, citing concerns over easier access to cash. rice field.
Beyond the tech industry’s shakeout, the Silicon Valley Bank failure could have broader implications for industries such as real estate, where office landlords are already facing declining demand and asset values. In many cases, the SVB provided a letter of credit in lieu of the lessee’s security deposit.
Fast-growing tech startups, like Silicon Valley Bank’s typical clients, rely on these letters to secure leases because they don’t have the credit of established blue-chip companies and don’t want to tie cash deposits with their landlords. often, says Alain R’. bibo, a real estate attorney for Allen Matkins in Los Angeles; You will now need a new letter of credit that will require you to transfer the collateral to another bank or solvent institution.
“Moving from secured to unsecured leases puts landlords at significant risk,” R’bibo said.
But one Bay Area office developer and investor who has at least three tenants in his Silicon Valley Bank account said landlords almost always tend to evict renters if they have trouble finding replacement tenants. said it might not. According to his broker Cushman & Wakefield Plc, Silicon Valley’s office vacancy rate will rise to 19% by the end of 2022, compared with 24% in San Francisco.
In the Northern California wine region, where Silicon Valley Bank was the primary lender, issues such as payroll were top of mind for the vineyard when news of the bankruptcy broke Friday, said a wine law partner at Hanson Bridgett LLP. said expert Daren Shaver. Federal action may ease that, but in the long run there will be “a major drag on investment and development activity” for investors who tie their money to banks, he said.
Christopher Thornberg, founding partner of Beacon Economics, said the economy remains fundamentally strong, even as the SVB collapse shocks the region. “The unemployment rate in Silicon Valley is 2.1%,” he said. I am employed in.”
A state’s economic fortunes can change quickly, like the state’s volatile weather. After several years of drought, one of the wettest winters on record continues. Another atmospheric river is forecast for Monday.
©2023 Bloomberg LP