Predictions from Mayfair’s COO Munish Chopra for Silicon Valley Bank and First Republic Bank.
Predictions And Insights From Munish About Silicon Valley Bank
It’s nowhere near a 2008 event. Everyone is worried about markets but this is not a rolling crisis. Silicon Valley Bank (NASDAQ:SIVB) is not systemically important. No other bank will fail unless the FDIC and Fed let depositors go uncovered. If they do, everyone will flee to the top ten banks.
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No other bank has a balance sheet this lopsided, except for likely some very tiny banks that are of no importance to the economy. It's a bank governance failure and arguably a failure by the FDIC to impose proper stress tests and stricter accounting.
There's something called an AOIC opt-out which SVB was allowed to do that didn't really hide anything if you were diligent, but flattered the balance sheet. I'd also argue that it's ridiculous the Chief Risk Officer resigned in April 2022 and they didn't replace that role until January 2023
What About First Republic Bank?
Not an issue. SVB had the majority of its assets in fixed rate medium-to-long dated securities. First Republic Bank (NYSE:FRC) has <15% securities. It's getting thrown into the mix because it's exactly the size SVB was from a total assets perspective, and also a California/tech darling. But its balance sheet is not lopsided like SVB's was/is.
FRB is ~80% loans. 80% of those loans (i.e. ~64% of the balance sheet) is backed by real estate. FRB is probably more exposed to a real estate cycle than anything else.
This is why I don't think the Fed and FDIC will let anything happen to depositors. If they do, it generates an economically-material panic for a problem that is currently contained and can continue to wreak limited damage.
About Munish Chopra
Munish Chopra is the former Managing Director of Triton Partners, where he helped create the multi-billion dollar investment firm’s debt business. Previously, he was an investor at Texas Pacific Group and an investment banker at J.P. Morgan.
He currently serves as the Chief Operating Officer at Mayfair, a California-based fintech firm specializing in high-yield, high-liquidity cash accounts for businesses. With the recent news about SVB, Mayfair is getting flooded with new customers.
