Business Pants – 2023-03-13

Hello. Live. From the svb. Espresso machine that I'm currently competing for Matt. Remember those old contest where they were giving away a car like a radio station is giving away a car and you just had to keep your hand on it and the last person to keep their hand on, it gets the car. People would do it for like you know 72 hours straight. They would, they would either pants. Remember those know that no one right now, that's what's happening, that's how they're giving away their espresso machine. It's yeah another manic Monday edition of business pants joined as always by our lord of the BS map Mascari and today is ESG sent. It rabbit cage called March 13th 2023. A big pile of failure. Matt It really is today before I hit it over to Mac because Matt you weren't you some kind of like banking sector expert. At one point in your life. I was one of time covered the financial sector doing else's of the post financial crisis banks. That was one of the eight reasons why I hated you. When I first met you yeah you did not like me, isn't that true you didn't like me financial institutions, like who understands that stuff I guess you do. But So we're gonna hand it off to you. This is gonna work today. You're gonna, you're gonna explain this Fiasco to us, then you're gonna talk about the stuff that we do best which is The Who Behind the failure, right? Because once again, this is the one thing that the Press is not covering the. They always talk about these things. Like it's an entity like it's a nameless. Faceless people this place, right? Just a bank SVP, it was. And even when they talk about it, that way they talk about like the, you know, the failure of risk management by this a morphis and more fist blog. Yeah, this blob of corporate Miss and let me add one other thing before hand. It off this, we're talking about Silicon Valley Bank, which had a spectacular failure on Friday. We have two other failures to discuss that happened last week, but I just wanted to say this, First of all, Fu Silicon Valley Bank because this makes our job exhausting. Yeah, but this I will say this That there was maybe point. Oh five percent of the headlines this morning were about the Oscars. So for that I think you because I care that is that was worth the Oscars. Yeah. But nobody cares about the Oscars in the business Press today. Nobody, you know what? We lost out on. And they also are like seeding. For March Madness and you know, that we're losing everything and we have to do March sadness. All right, we can talk about that on Wednesday. Maybe explain the failure, take it over Max, explain this. Okay let's let's start with something to get us excited. Which is it's a big news day today. Sure because banks are failing everywhere. All right, here's what happened. Okay you seen, I'm sure everyone's seen headlines about bank failures. Silicon Valley Bank is the 16th largest bank in the US and it's the largest since the financial crisis to fail. Here's a really short notice of the mechanics of what happened. Okay, first interest rates go up because the FED is raising them because the economy is Banana's, and they're trying to raise rates and Ukraine and Russia and lots of things happening. But interest rates, go up. Silicon Valley Bank is uniquely positioned to get crushed by interest rates going up because out their balance sheet is so they they sit on a lot of cash that they can't deploy in the way. A normal Bank does because their cash is for funds. It's like, you know, it's not like you say for fun. Fun, because that's what my cash is for, too. It's for It's not like it's not like you know you want to go to Six Flags, you go to your bank and you've got like 12 dollars in your savings account and you you realize you have to borrow money from your mom, right? It's more like these are Venture funds the 50 56 percent of their funding like their deposits where effectively cash from venture capital and private Equity Bros, okay? And most of that money is uninsured, right? So they can't deploy it like in a mortgage easily and its uninsured. So they're sitting on a bunch of cash that they can't make very much money from, so they have to buy things like treasuries. And in order to make any sort of interest rate, they have to buy long, dated, treasuries and less liquid, treasuries and they get killed more by interest rates. Okay, talking about. But yeah, sure, yes, yes. Number two, step two, like destroying a bank. Freak out a tech, bro. VC private Equity guy, just out of tech, bro. Yeah, this is the interesting thing to me. Yeah, go ahead. so effectively what happens is they the bank in a series of moves talks about how they could use more money But they don't tell their clients or anybody that the tech Bros in their Circle because it's an insular Circle. All kind of talk to each other quietly like sending messages they're like calling their clients and being like pull the money out of Silicon Valley Bank. We're afraid they don't have enough money. They're not liquid enough, right? So pull out and now there's all these stories about like the companies and the VCS and the private Equity Funds that pulled all their money up before everyone else, and they're like, high-fiving each other like see we got our money, right? So they freak out a tech, bro. And it starts With it starts to run on the bank. So that step three is you pull your money and the run on the bank starts Bank collapse is basically immediately. So, why saying ostensibly what you're saying is that, if somehow, they could have collectively, not freaked out on mass, get a prevented this which is shocking to think how Easy, I've been to prevent it. The banks assets are like Very stable. This isn't the 2008 financial crisis where the banks assets were all ship. And everyone freaked out and pulled their money and Banks. Could have this is their bank's assets are great, they're fine, it's not the problem. It's just their little liquid, then they would like, okay, and they need some cash now because all you more runs, keep pulling all your money out and you know who you more owns are. Yeah, it's Rich VC, Bros, talking to each other one. Drink all day long expensive. What? For those of you who still actually use the platform Twitter? This exists. Yeah, there's a fascinating fascinating posting this morning from Lulu Chang meservy, who is the chief commercial officer Activision Blizzard. But she talks about this very subject matter. She talks about how Silicon Valley Bank kind of Released put out a press release saying that they're raising more money, but they didn't exactly explain why. And then people started to get a little uncomfortable, it's a great, it's a great summary. So for those of you who care about platforms called Twitter Go, I mean mostly this is a bank failure of communication, that's what she said. Yeah, yeah, that's that's a lot of what this is, right? But this is where it gets interesting. Because now, if Silicon Valley Bank, everyone's freaked out about it. Now you're in a position where you freaked out. This is step four freak out, every rich person in America the contagion here. This is a one percenter bank run because probably even point oh, one percent or yeah, go ahead. Yeah, maybe even Point 01 percent because what ends up happening is for the deposits are only insured up to 250,000 dollars by the FDIC. Which means if you're wealthy enough to have more than 250,000 dollars of cash in a bank. Now, every one of those people is thinking I need to diversify my bank holding. I want all of my cash to be sure, right? What do you do when you realize that you've got 2 million in a bank account or 7 million or 20 million in a bank account is just sitting in the bank account and it's in some sort of cash or maybe it's in your like savings. Like your grandma put it there and you realize that like most of that money is no longer insured. Well, what you do is you pull all that money out and then all the other Banks, what we're seeing in the market today. Is Banks like First Republic or Comerica or Primerica, or like, all these little sort of mid-tier banks West. Yeah, exactly. All these banks that have like a focus on high net worth people. They're now petrified that their money isn't fully insured by the government. and there's a big irony alert here, okay, because People with that much money, mostly hate the government. They hate taxes. They the government. They hate taxes, those people and regularly hate anyone, taking their money. And now they're petrified that the government isn't involved enough with their money, like, they don't have enough insurance from the government on their money. So they're pulling the the risk here. Is that all the 1% errors? We are about to have a trickle-down trickle down economics Works. What what it works to do is they all take their money out at the same time and then all the banks fail and then you and I can't get our money either trickle down, one percent, or tears. It is trickled down 1% economics, right? And for those of you who do need a place to stash your cash, I would call free flow board, saber metrics because we are a very sound place to invest your cash in. Yeah, well, in as much as we are a place, we are a place of returns and we have you can in fact for that money we will give you Data on boards that you may or may not want. So they do want to, but they all want it. So that brings us to the last element here, which is freaked out the public, because after you freaked out all the rich people and the government steps in and starts in like guaranteeing deposits, even for people who aren't insured by the government, and it looks like a bailout even though Biden just came out and said, no taxpayer money is being used. This is not a bailout. We are simply. They're basically facilitating a transition to another bank, so they're temporarily facilitating. This other major banks are now getting hammered especially banks that are like consolidated with high net worth people. They're stocks are getting hammered and everyone's afraid that the insurance is in enough. And honestly who's got 250,000 dollars or more, you know, in a bank account, do you you have? I would love, I would love. I would love that to be the case. I mean, are the data Queen has like seven million in a single bank account, I think. Is in the Bahamas. Can I just say to your point though? I don't know that the public hears about this just quickly Boston Globe boston.com. Here's the main headline. What forecasters are saying about the nor'easter coming Monday night my local paper, my local paper Portland. Press Herald as a main Distillery grows so does worry over whiskey fungus. I'm serious in the USA Today. Headline, President Biden. Green lights. Controversial, Willow project in Alaska. So, I don't even know people care other than idiots like us. Yeah, so that's that, then that's it. So, that's the what happened? That's the base. That's the one like, and you can get that data anywhere. So I'm glad shine no new insight for you. Yeah. But our Insight comes in the who happened? Yeah, let's do it. Come on. All right. Awesome. Some music for this. I'm kind of, so I'm just ready. The same. You go to the same. Yeah, because you got to get pumped up for who the real news here is who as ever? I organized this conversation in three parts, three and a half parts and you're going to fill in all the pepper. You some delightful analysis. First up. If you want to know, this is a step by step guide to a bank, starting a bank that guarantees groupthink and lack of diversification and fails up because the first thing you need to do, oh, by the way, diversification is outlawed in Florida. So don't do it there. But the first thing you need to do is find some fails up, white male, Bankers to run your bank. Okay, that's actually seems like an easy enough task. It's not hard. No, it's not hard. So just, just to give you an overview of your failure list. Here's my short failure list back. Who's the CFO? That would be. Yeah, that would be Daniel Beck CFO at Silicon Valley Bank svb Financial svb Financial which the parent or to Silicon Valley Bank. Danny Beck's is ex Freddie Mac. He came from Freddie, Mac. He was led accounting accounting policy through 2006. And then right after that he went to Wells Fargo where he was giving home equity loans, is that through 2008? Oh brother! Yeah so he was the One Lending people with no money, more money on their houses. At Wells Fargo. That was part of that. Yeah. What? I'm president, I'm definitely gonna. I'm gonna be part of my new regulations. Is it going to be some Clause that if you're involved with things like Freddie Mac or mortgages at Wells Fargo? You have to you're the best job you can get next is like maybe a bookkeeper at a local auto mechanic, you know, like but but like a mechanic with like, you know, 15 employees, not. all it's a good job but you don't get To you don't get to be allowed to get more important jobs. I think you should be an advisor in how to not get somebody loans or accounting policy, right? And like, this should be something like that. She's might be a bridge too far. Well, who else we got for failure? Then there's a Cajun, the Frenchman. Oh, yeah. Mark Mark, Mark, Mark, could you see? Oh, and I just wrote down. He sponsors the women employees here. He's talking about the chief credit officer. Yeah, yeah. Sorry. Chief credit officer right. But he on ironically, is the sponsor for women employees, Dan. Danny is actually this sponsored that right place? Yeah, these are the Vivid came out today and said that, like, and there's a bunch of places saying, svb was woke, and that's why it's getting bailed out. Cover that Wednesday. Let's try to say that the white men are sponsoring All the diversity. So well I I will notice. One thing about the three major failures last week that would be silver. What? I'm sorry. Silver Gate Silver Gate Capital Signature Bank and SBB All the dominated by white men, just saying unusual, even unusual for our world that we cover. I'm just saying, I'm not. I'm just right here. Um, but here's the next failure and it's the CEO. Bill Cox philcox was ex Lloyds banking group in 2008 and with them if you tracked Lloyd's Lloyd's had all sorts of banking programs where they were effectively. They had these loans called bylet loans where they were giving people loans on good so that they could basically lend out their houses, rent out their houses. But the all of those were underwater and it was, and then they were charging interest. It was like a big mess nightmare mess. Okay, financial crisis. That's Fox. That's Phil, Cox. The president of the bank. Yes, no. They really like the French guys. Yeah. Um is this is X Arthur Andersen. Yeah. Guess when he stopped working at Arthur Andersen? Well he stopped when it stopped when it stops 2002. You know what I found? I found. This is okay, he's an interesting case because first of all he was the former CFO at svb financial and somehow he stayed around as the president of the bank. I don't really know what happened there. It sounds Shady to me. Like, he got demoted in some capacity, but lateral this dude scrubbed his LinkedIn page, it no longer exists, really? Yeah, I found that out this morning, it is gone. So I don't know what's going on with this dude, but it doesn't surprise me that the guy who was listed somewhere as the head of financial services at Arthur Andersen scrubbed. His LinkedIn page in light of this collapse after this. Good going. Michael Dacia. No, good, nice. Yeah. So obviously there's A bunch of white men, failing up, but even worse. So then the women of these involved in this is all the management team. The women involved in the management team are in no particular order. They had of HR the head of marketing and the chief risk officer. Now the chief Frisk officer is the one that's interesting because she started in January of 2023. She started two months ago, okay. The prior Chief risk officer, who she replaced stepped down. In April of 2022. They had no Chief risk officer for almost a full year. Not explained, how they ended up with a woman because they were just like, how do we, how can we not find a man? Are we gonna actually hire a woman? Like so on the executive team, the chief risk officer is usually like a compliance driven role. Like it's it's it's the person in the room who's like, no, we can't do that and they obviously gave that to a woman. It's like so that somebody who they could all sit around afterwards and be like, oh gosh, she's so shrill when she says. No like you can imagine it right. You can see it. Yeah. Can I tell you can interrupt for a second? Can I tell you that as well? Once again, are horrible, snarky humor. Here is all based, in fact, because no, no, no, I'm serious because of the three companies that fail last week. They were all dominated by men and yet each one of them had a female Chief risk officer? Yes, the bank. This one. Yeah, it's it is. This is, this was coming even when I was doing looking at these Banks, it's the bank of equivalent of, like, head of legal. Like it's the, it's the mommy role, right? Like Mommy says no, but I want to do it anyway. That's what that role is. It's so believable. So that's step one to this. Step by step guide, you find some failed up, white male, Bankers to run the bank, which you did. Yeah. He'll tell you what, you forgot to mention svb. Security's, chief administrative officer Joseph Gentile. Was the right wait for it was the CFO of Lehman Brothers Global Investment Bank. Oh, until 2007, what? Yeah. So right, right at that collapse and He started his career at Arthur Andersen, did he really? Yes, you're lucky, even get to 2000. But this is all this is all real. Um, And this is all on the interweb. So step two, then And your bank that guarantees groupthink is lend mostly to one cohort specifically in this case Tech Bros because they're super cool, like, just lend to Tech Bros. Yeah, this is where Paul Krugman said that this should have called this bank, schmoozing and Vibes bank. That's what he legitimately what it is, 50% of their loans went to Tech Venture private Equity Funds. Now, in case you don't know about those funds, women make up an estimated 8% of venture capitalists. So, this is a 92% male cohort. Roughly just reflected in their leadership and Boards, right? Yes, 14% of their loans went to the quote Innovation economy influencers to give the mortgages that could be us. No, it is not. It is the founders of startups and Tech Venture Capital funds. That's what it is. The their version of Economy influencer is startup Tech Bros so they're basically lending to the funds themselves and then lending to the founders and Executives of those funds. So they can buy houses for themselves, you know, you know what this also explains to me. You know what I found about about the board at svb Financial What? Seven out of the 12 members have degrees from Stanford. Yeah that makes sense. That makes some sense here. Yeah which is libertarian seven out of 12. That's a lot of groups, think? Yeah. Now on top of lending them. For their houses, right? Like the economy influencers, you also will find that 2% of all of SVS loans 2%. Well, they had 220 billion in loans 2% of that were for quote premium wine producers and Vineyards. Okay, so this is basically the tech bro, fund. Plunks their cash in your bank as a thank you. You give the tech bro, fund founder alone for their house. And then maybe another loan for the vineyard that they bought from all their Venture Capital money that they made, right? I mean you got a party somewhere. You gotta go somewhere to show off and party someone. Yeah, someone someone's got to throw the party and 21% of our overall lending went to startups and companies himself mostly in the Silicon Valley sphere. These are all like some mix of, you know, mid-stage and early stage. They had some late stage but it was mostly made in early stage companies and just so we're clear. There's an estimated 2% of funding for startups, that go to women, think about that, 2% of the of the the monetary number goes to women. So you are talking about, they lend 92% of their money to men who are running Venture Capital firms 98 percent. Of their money likely, go to men who are running the startups. So the women can't even get 8% of the capital they to the 8% that they actually get money, they only get 2% of them. They only get, I mean, no 8% of the Venture Capital, like the Venture capitalists are women. That's what I'm saying, but they don't even get that much money know they, you know, they get much crazy just craziness. So summing that 81% are loans to what are likely mostly white mostly male borrowers and one cohort like text startups effect. Okay, well maybe this would be a good time for me to talk about or do you have something else you want to add to that? Well no I'm going to go on to my next step. Which is monitoring risk without actual risk. Professional. Before you get to that, let me talk a little bit about the what I found about our own data, the board level influence because I think it speaks to what you're saying, which is You know, keeping it insular, right? Keeping it all in one room. So here's what I lost about. All three companies, Silver Gate Capital. They announced last Wednesday that they were ending operation in Florence on. That was controlled by two long tenured directors. Two men 46% of the board influence. Okay, two minutes a lot. Yeah, Hi. It also might want to know that the board chair at silvergate Capital was the former senior attorney at Silicon Valley Bank. Just so you're just so you're aware. So that's how that, what's that he? Well, I think not silvergate. Oh, yes, silvergate. Oh, that's like that's over again. Yeah, it's hard to keep them as silvergate svb. It's a picture. What's the deal? Yeah, a signature bank board influence all, so is controlled by two long tenure directors founding directors. Again, these are all men that I'm talking about. Two men control, 67% of the board influence, right? And then a svb, the one that we're everyone's talking about That their board is controlled by four long, tenured men, that control 53% of the influence, that includes the CEO and three guys who went to Stanford. So you kind of get the overall. I get a Vibe picture. I'm painting here with our data, right? Yeah, I got, I get a standard. Yeah, you've done a really I point this out because this is what, you know, ESG ratings companies like msci Miss, because they don't see any of these connections that articulate, like the actual power board within a board. The actual Power Sphere that we can articulate. Well, they're just saying, they're busy measuring flowers and I'm just saying brown people. I think I'm not. All right, so the next step here is to monitor wrist without any risk professionals. So I already said, they had zero Chief risk officer for nearly a year. Okay, in that time, they have a risk Committee of the board that includes. There's seven people on the risk committee. It's the largest Committee of this board. Yeah, it includes the following The CX CEO of palm and three calm, which is like ethernet cords who went on to do venture capital. A consultant from Accenture whose specialty was in Outsourcing stuff. At the board chair came Matthews who prior worked at Ernst & Young working with tech companies and Venture capitalists. Okay, Someone who actually worked at the treasury Department except that she didn't work in the banking part of Treasury, she worked in the investment part of Treasury. A private Equity, a woman worked in private Equity, after working a Bank of America, which sounds good except that she was in technology and opposite Bank of America. And then a fintech startup guy from like the 80s who is a winemaker now. Oh, so you have A risk committee. Made up of no one who has Financial Risk background, in banking, sure to make up for that though. They, they have a bigger risk committee than any other committee, even though they have no chair of the risk committee. According their proxies, they will not label a chair of the committee, the rule, Oh, that I have not seen, but I will tell you the rule of thumb and committee World in governance committee world, is that the bigger the committee, the less that really that's happening. Then, yes, there's nothing being achieved right. It's basically the board shows up to another board meeting. Well they didn't just show up one time or two times or three times. They met 18 times. Wow 22. So something was a foot. Clearly something was going on. Something was stinking. Yeah well when you have no Chief risk officer to come give any information to the board about risk, right? Then your committee meets 18 times freaking out about a not having a chief risk officer and B. Does anybody know how to measure risk? Because we don't have a chief risk officer. Maybe I should meet a lot, and this isn't surprised me because of what I'm reading in, the news is the the warning signs were happening in 2022 because there was talk, Peter, thiel's Founders fund, they withdrew their Millions. There's talks of early people, kind of smelling something. Yeah. Those are the pros that got freaked out. Yeah, exactly. Right. And and there were signs and then finally, all you have to do is act surprised that any of this happened and rinse and repeat because Signature Bank, which you mentioned already they are, they had a lot of crypto deposits and that's one of their downfalls that the mechanics were very, very similar but if you look at the who on Signature Bank, Signature Bank, unlike svb only held four meetings to the risk Committee in 2022 and the risk committee was comprised of the founder and CEO of the bank. The incoming CEO of the bank, who was the show, right? The other founder and board, chair of the bank. Who was the chair of the risk committee? Yeah. Uh-huh. A boomerang board member who was a board member for like five years and then has come back recently who runs a real estate advisory. And then two token women, one of whom was a VC and the other one, the CEO of Heineken USA. So, nobody cares what you're saying. Nobody cares about wrist. Nobody cares about risk. The you mentioned signature had like, two, male Founders, who were running the influence of the company they both sat on the risk committee. So we think it's bananas. So that's how it that's that's well my version of The Who but you have a lot more on. I don't I don't have a lot more I've covered. I think the one thing that we should point out was that you know, the the Bernie Sanders Elizabeth Warren. There are already linking this to relaxed Dodd, Frank provisioned on Regional lenders. Right. They're already Trump rolled back those regulations, but I wanted to specifically, mention that in 2015 svb CEO. Greg Becker also Lobby the government for these rollbacks. Arguing, it would otherwise lead to higher costs for customers. And quote, stifle our ability to provide credit to our clients. He said that svb does not pose, systemic risks, blah blah. So he himself Lobby to have even, even less risk, oversight over his institution, the CEO himself. So, and then Trump listened, right. Trump listened. Yeah, he lobbying 2015. Trump actually did roll back these Provisions in 2018. Just one of the point that out, I mean, look, the the fact is, if there's somebody you want to be angry at, if you are in one of the industries, in fact, I saw that like, Etsy was one of the svb clients who didn't have access to their cash and was telling everybody all the small businesses who sell on Etsy. We can't pay you until we have get access to that cash. It's like they basically. So they were talking about like, You know, the when you look at who sells at a place like Etsy, it's disproportionately women and people of color because it gives them access to a Marketplace or they wouldn't normally have access, right? So, so the trickle-down effect here is actually going to impact real people, and their real lives because of, you know, decisions made at this level. But if you're looking for someone to be angry at The people to be angry at are a board who couldn't find a chief risk officer. Largely didn't care about wrist in Heaven's professionals. They could find the dining hall at Stanford University though. They definitely easily. Yeah, they didn't even need a map for that or tour guide, they could find their way into a winery party because they lent a Ranger, a winery rager. Yeah, but it's really like the reason why svb collapses is Tech Pro fear. This is a one percenter Bank Run. This is People in a sphere who all hang out at parties in Silicon Valley, and they make phone calls to one another, and it's like that broy. Hang out. He thing that's happening. Where they all freak each other out about the possibility that someone like is going to not allow them access to their money. And they all pull out at the same exact time. That's what's happening. One one last tidbit here so there were Whispers of liquidity issues. I guess reportedly back in December 2022 as Founders started to quietly. Bail out, right? So that's what's going on CEO. Greg Becker, at the end of January of this year filed, a sold 4 million dollars in shares in the company. Done this in over a year. So congratulations CEO, Greg Becker. For cashing out, just at the right moment. I like that. Look, the lesson of all these things is there are there are mechanical reasons for these things but there's always a who and there's so we do here, we're the who know more than you do before you do. There's people with influence over the decisions and how they happen. Like if you want to know like how a press release goes out, that freaks out all the tech Bros, you have to ask who released it and what were they thinking us? Yeah, nobody else. No one else, no one else, cares until they regulate it later. And then they try to send one to someone to jail and it doesn't work. That's all we got. That's a lot. Come on, that's a lot of svb talk. I'm just pages of research that we didn't even cover your wife know, we didn't get to all of it. We didn't even but that's it for now. Come back tomorrow for corporate theater and on Wednesday. Oh yeah Wednesday. We have woke Wednesday and we'll take the wolf angle on all this, right? We'll cover on that. Are we getting gonna get somebody to come on? I mean, we've been talking to. Well, we'll talk Doug from Jersey. We'll see. Let's see if we can get somebody to come on and talk woke svb, and whether or not you could be too woke to fail. Until then Goodbye.