“The failure of Silicon Valley Bank could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive government preferred bailout should be considered.”
That was Pershing Square Holdings CEO Bill Ackman, tweeting on Friday that a government bailout of crisis-hit SVB Financial
may be needed if private banks don’t step up:
In a Twitter thread, the fund manager said that the government could “guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections.” Additionally, if the bank is solvent, he said the intervention would then give the bank some time to raise new capital and restore itself.
Ackman added that he didn’t see another bank “stepping in” after what the “Feds did to JPMorgan,” in reference to the banking giant’s 2008 purchase of Bear Stearns and Washington Mutual at the government’s request, and its subsequent inheritance of $13 billion in penalties from the mis-sale of bad mortgages.
SVB Financial Group’s
stock slumped more than 60% on Thursday after investors rushed to withdraw deposits from the tech start-up-friendly lender.
Read: European bank stocks slide on worries over their holdings of bonds
“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall. That is why government intervention should be considered,” Ackman explained.
He maintained that the bailout should be implemented to protect the depositors rather than management or equity holders. “We should not reward poor risk management or protect shareholders from risks they knowingly assumed,” he said.
The Dodd-Frank bank reform law inspired by the 2008 crisis created what’s called Orderly Liquidation Authority, or what is commonly called bail-ins. In that scenario, shareholders would lose their shares and junior debtholders would have claims converted into equity.