Bill Ackman says Gov has 48 hours to fix SVB 'irreversible mistake' (2024)

Billionaire hedge fund manager Bill Ackman is forecasting 'economic meltdown' within hours of the banks opening up on Monday morning following the failure of Silicon Valley Bank.

Ackman is urging for the U.S. government to finally step in and protect all of the bank's depositors, warning inaction could lead to aripple effect across other smaller banks within the industry.

The worry is that customers will rush to withdraw cash from their accounts fearing instability across the banking system with the very real possibility of a domino effect.

Ackman is urging the government to take action and fix a 'a-soon-to-be-irreversible mistake' by Monday morning, to prevent such a bleak scenario from occurring.

His ominous warning came hours afterGreg Becker, the chief executive of SVB Financial Group, sent a video message to employees of the bank acknowledging the 'incredibly difficult' 48 hours leading up to its collapse on Friday.

'It's with an incredibly heavy heart that I'm here to deliver this message today,' he said in a video. 'I want to acknowledge how hard the last 48 hours have been on all of you. I care so much about all of you. It really is so incredibly difficult.

'I am trying to look past to focus on two things. 1.) I am focusing on you and thinking about the ultimate outcome of what this could be despite this incredibly difficult time. And 2.) I'm focusing on clients.'

Silicon Valley Bank's collapse on Friday was the worst U.S. financial institution failure since the Great Recession, with $209 billion in total assets at the end of 2022.

The bank,which was the 16th largest bank in the U.S, failed after a 60 percent drop in shares due to declining customer deposits, forcing SVB to sell off $1.75 billion in shares.

While the FDIC has taken control of the lender, Becker said he is working with banking regulators to find a partner for the bank, but there is 'no guarantee' a deal will be struck.

Becker wore a black zip-up jacket with a logo from Gleneagles, a luxury golf resort in Scotland, and spoke from a room framed by dark cabinets.

'As you heard this morning, I'm not making those decisions anymore, which is really hard. But I am working with the FDIC to work out how we come up with the best outcome for our clients as well as out employees.

'I can't imagine what was going through your head and wondering, you know, about your job, your future. My goal is how to figure out how to preserve a small portion of the franchise value that we have spent so much time building and hopefully find the right partner that the FDIC can work with to have this institution continue with some form or fashion.'

He asked employees to 'hang around, try to support each other, try to support our clients, work together' to get a better outcome for the company.

'Thank you, and my heart is with you,' he said.

On Friday it was revealed how Beckersold $3.57m of stock in a pre-planned, automated sell-off two weeks before the bank's collapse - and the CFO Daniel Beck sold 2,000 shares at $287.59 per share on the same day as his boss, ditching $575,000.

Becker offloaded 12,451 shares at an average price of $287.42 each on February 27. The price plunged to just $39.49 in premarket Friday before the Federal Deposit Insurance Corporation (FDIC) seized the bank's assets.

There is no suggestion of any impropriety by either Becker or Beck.

Ackman, whose hedge fund Pershing Square Capital Management oversees roughly $16 billion in assets,criticized the government's response so far.

'If private capital can't provide a solution, a highly dilutive gov't (government) preferred bailout should be considered,' he wrote at the start of a lengthy tweet on Saturday.

Ackman stated how allowing SVB to fail without protecting all depositors shows that uninsured deposits are unsecured illiquid claims on a failed bank.

For banks that are FDIC-insured, only $250,000 per account is guaranteed.

But according to SVB's latest annual report, 96 percent of its total $173 billion in deposits was uninsured.

The FDIC said Friday that all accounts would quickly get access to the insured portions of their deposits, but that the rest would depend on how much is recovered from sales of the bank's assets, an often lengthy process.

Ackman said that SVB's collapse 'could destroy an important long-term driver of the economy.'

The billionaire predicts that as a result, that people will withdraw large sums of uninsured deposits from non-systemically important banks and transfer them to US Treasury money market funds and short-term UST.

'By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is – an unsecured illiquid claim on a failed bank,' he postulated.

'These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST. There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits.'

Non-systemically important banks are financial institutions that are not considered to pose a significant threat to the stability of the overall financial system if they were to fail.

These banks are generally smaller, with lower levels of assets and deposits compared to larger, well known names and systemically important banks.

Ackman believes that 'the destruction of these important institutions' will begin once depositors start draining money from regional and community banks - essentially leading to a run on smaller bank across the nation.

He argues that the U.S. government could have guaranteed SVB's deposits in exchange for penny warrants to prevent its collapse and create the potential for profits.

Ackman is not the only one to hold such views.

'The U.S. banking system is on the verge of a much bigger collapse than 2008,' said economist Peter Schiff on Friday.

'Banks own long-term paper at extremely low interest rates. They can't compete with short-term Treasuries. Mass withdrawals from depositors seeking higher yields will result in a wave of bank failures,' said Schiff who is known for hisknown for his dire predictions.

Ackman predicts that it is now unlikely any buyer will emerge to acquire the failed bank, and that the government's approach will concentrate more risk in systemically important banks at the expense of other banks, creating more systemic risk.

'I think it is now unlikely any buyer will emerge to acquire the failed bank,' he wrote.'The gov't's approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk.'

'The FDIC's and OCC's failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation's highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks' access to low-cost deposits,' Ackman suggested.

Ackman also criticized the FDIC and Office of the Comptroller of the Currency (OCC) for failing to do their jobs.

He believes their failures should not be allowed to cause the destruction of thousands of high potential and high growth businesses and the resulting losses of tens of thousands of jobs for some of the younger generation while also permanently impairing community and regional banks' access to low-cost deposits.

Despite the anxiety and uncertainty surrounding SVB's failure, the White House asserted that post-2008 reforms will protect the U.S. economy.

White House Council of Economic Advisers chair Cecilia Rouse has emphasized that the banking system is now in a fundamentally different place than it was a decade ago, thanks to the reforms put in place.

'Our banking system is in a fundamentally different place than it was. The reforms that were put in place back then really provide the kind of resilience that we'd like to see,'Rouse explained.