Are ASX regional banks and tech stocks safe after SVB collapse? CEOs give their views
The collapse of Silicon Valley Bank (SVB) in the US has rattled global financial markets despite the government’s quick effort to stabilise the financial system.
Bank stocks were the hardest hit and despite those assurances from the government, investors are still on edge over whether SVB’s demise could spark a broader banking sector meltdown.
The fallout has also forced small tech companies, by far the largest customer base for SVB, to scramble and disclose their cash deposits at the bank.
Over the last few days, ASX companies to have disclosed their cash positions at SVB include:
Siteminder (ASX:SDR) – has cash holdings of up to $10m with SVB and SVBUK as of 10 March, and an undrawn US$20m revolving credit facility.
Life360 (ASX:360) – says its exposure is expected to be between zero and $5.6 million, with no significant disruption to operations.
Xero (ASX:XRO) – has a $5m exposure to SVB, which is less than 1% of XRO cash and equivalents as reported 30 September.
ikeGPS (ASX:IKE) – has total cash of approximately NZ$19.6m, of which NZ$5.3m is held at SVB.
Fineos (ASX:FCL) – says it has managed to move US$1.5m out of its SVB account into another bank, leaving a balance at SVB of approximately US$250k
Whispir (ASX:WSP) – says it has US$173k on deposit with SVB
Tinybeans (ASX:TNY) – says that through its US based entity, the company holds deposits of approximately US$1.3 million in SVB.
Tinybeans CEO, Eddie Geller, told Stockhead that Tinybeans banked with SVB because “the bank was responsive, their platform was always reliable and easy to work with, and they understood our business.”
The company has earlier announced that its deposit of US$1.3 million with SVB has been “resolved”.
“We are cashflow positive, so we were in an OK position regardless. Also we had other funds in other banks, but still losing that much cash for no reason would have been terrible,” he said.
Geller doesn’t expect a domino effect for the tech industry here in Australia, but has not ruled out the possibility of another bank collapse in the future.
“I don’t think there will be a domino effect, especially now as the US Fed Reserve has backstopped deposits. At the end of the day, they are simply providing basic banking services, nothing that special and unique to the tech industry.”
“I guess any company that has deposits in a bank, where a lot of the bank’s deposits – like what happened at SVB – are withdrawn at the same time, will always be at risk.
“One thing to consider is to spread the cash between several banks and minimise the exposure. This is something we’re considering even more, although we had already done that to a degree.”
Auswidebank (ASX:AUS) CEO Martin Barrett told Stockhead that Auswide has no exposure to SVB, which he said was a very different type of bank to Auswide to begin with.
“Auswide keep things simple, primarily customer deposits, relatively light RMBS and mortgages.
“We have no exposure to cryptos, bonds or concentration risk to the tech sector or any other sector except perhaps Australian houses,” Barrett said.
“We are also profitable, have diversified funding, a low risk lending book and frankly, are positively boring. We undertake business continuity testing, stress testing, and have extensive contingency and continuity plans in place.”
Barrett says that whilst at times the regulatory environment in Australia can be burdensome and costly for a smaller bank, nonetheless it is broad, detailed and vigilant.
“It plays a very important role in ensuring the robustness of the financial system, and of course the safety of Australians’ money.
“However the executive and to a lesser extent, boards, of banks remain critical to prudentally manage the variety of risks across the banks. They are the first, second and third lines of defence,” Barrett said.
He added that in Australia, small banks are held to the same standards as the big banks. And unlike the US, we do not have a “regulation light” approach to smaller banks or any banks.
“Our regional banks I believe are very strong, low risk in their lending exposures and their breadth of funding,” Barrett told Stockhead.
According to Barrett, Australian banks also have high capital levels when compared globally, and have boards that have a significant responsibility under BEAR (The Banking Executive Accountability Regime) accountability.
“This accountability extends to bank executives. I’m not aware such a focus exists in the US. We also have high levels of regular oversight from APRA including reporting, review and extensive standards,” Barrett said.
“So in a nutshell, I would bet the overall safety of all banks in Australia, not just the big ones, would be the strongest globally,” said Barrett.
Morningstar Australia meanwhile is of the same opinion as Barrett, and believes that although some ripple effects may occur, Australian banks will not be materially affected by the SVB failure.
“The full extent of the ripple effects will not be known for some time, but it seems premature to consider this a systemic issue,” said Nathan Zaia, senior equity analyst at Morningstar.
Zaia says the conditions that allowed a bank run to happen on SVB do not exist for Australian banks.
“There are two key differences. First is the concentration of SVB customer deposits, meaning it takes far fewer customers deciding to pull money out before creating a liquidity event,” Zaia explained.
“Second, SVB had a large percentage of their assets held in investment securities, which were out of the money, in contrast to Australian banks which primarily invest in mortgages and corporate debt.”
Morningstar has retained its fair value on Australian regionals Bendigo & Adelaide Bank (ASX:BEN) at $10.20 (vs current price of $9.12), and Bank of Queensland (ASX:BOQ) at $8.80 (vs current price of $6.57).
Zaia said the largest risk the SVB failure poses is that it could lead to higher costs of debt-funding for banks globally.
And in Australia, this higher funding cost would likely be passed on to borrowers on variable rates over time, he said.
Looks like the losers will once again be the Australian mortgage holders, who thought they were about to get a reprieve the moment RBA pauses its punishing rate hikes.
Other experts have chimed in on the debate on whether the SVB and Signature Bank’s collapses could weigh on broader markets.
Seema Shah, chief global strategist, Principal Asset Management, said the the bank’s collapse was a direct result of the Fed’s aggressive rate hikes.
“SVB and Signature Bank’s failures have reminded investors that risk assets simply cannot escape the wrath of monetary tightening,” Shah said.
“The risk of a banking crisis has finally underscored the tensions between the Fed’s efforts to tame inflation, and growing concerns that the policy tightening to date will spark a recession.”
Janus Henderson portfolio manager, Richard Clode, said that while SVB was a relatively small bank, there may be implications from some of its outsized exposure like solar financing.
“More broadly within the tech sector, the impact is likely to be limited to publicly-listed companies, but has the potential to have a significant impact on private companies, many of whom held large parts of their funding at SVB,” said Clode.
Meanwhile, Monica Defend and Vincent Mortier of Amundi added that while this saga is not a systemic risk, it could shine the spotlight on smaller regional banks.
“While being a negative for the market, the SVB failure is more of an idiosyncratic story rather than a systemic issue,” they said.
“Compared to the Lehman crisis, SVB is not leveraged, has no big derivatives exposure and no relevant global connections.
“We are positive on the banking sector overall in the US, but we have a cautious stance regarding midcap financial equities. We favour banks with meaningful valuation support and a diverse deposit base.”
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.