Whatever You Do…Don’t Panic!
“Don’t look now but there’s something funny going on over there at the bank George. I’ve never really seen one but that’s got all the earmarks of being a run.” – A Wonderful Life
Market participants will be analyzing the downfall of SVB far into the future in an attempt to pinpoint just what, exactly, caused this stalwart of the venture capital world to fail. There are many factors at play and plenty of places to point fingers. We believe the bank’s failure to communicate effectively was a significant factor in the fact pattern that set off the largest bank run in modern U.S. history.
After market close on March 8th, SVB issued a press release announcing that it was seeking to raise $2.25 billion to shore up its financial position. Tacked onto the end of the release – almost as an afterthought – was the disclosure that SVB had sold approximately $21 billion of securities, substantially all of its available for sale securities portfolio, for an after-tax loss of approximately $1.8 billion. The release was written in the formulaic language that can be called “SEC filing-ese”, with no quote or further explanation to provide context or tie the actions to the bank’s overall plan to shore up capital.
SVB’s perfunctory press release left investors and depositors slack jawed. The announcement created an information vacuum. How dire was the bank’s financial position to sell assets at such a loss? Was this related to the just occurring Silvergate failure, and what if the capital raise wasn’t successful? How safe were depositors, which included nearly half of all U.S. tech startups backed by venture capital? SVB stock lost more than $160 per share in market value on March 9th.
“The last thing we need you to do is panic”
With investors and depositors desperate to understand the full picture, SVB CEO Greg Becker held an approximately 10 minute long Zoom call nearly 24 hours after the release crossed the wire to try to stop the bleeding. Once again, the bank’s action had the opposite result. Mr. Becker told viewers – who were not given an opportunity to ask questions – “My ask is just to stay calm.” He essentially told investors, you owe us: we have been “a longtime supporter of you, the venture capital community companies, and so the last thing we need to you to do is panic.” Begging is not an effective communications strategy.
Unfortunately, Mr. Becker’s attempts to square the fact that the bank would be raising capital while saying that everything was fine rang hollow, with many noting the dichotomy was eerily reminiscent of the early days of the 2008 financial crisis. As unanswered questions mounted, social media users were quick to fill the void, and customers withdrew $42 billion – nearly a quarter of the bank’s total deposits – in a single day, resulting in the 40-year old bank’s ultimate demise.
Best practices for a company in crisis
As tricky situations evolve, job #1 for leadership is to steer the ship, provide an accurate account of the matter and ensure panic does not arise. So, what do you do when the facts are not in your favor? What could SVB have done differently?
- Maintain control of the narrative. A reassuring quote from Mr. Becker in the March 8th press release and a statement about the bank’s capital position relative to regulatory requirements would have provided important context and help address obvious questions.
- Know and reach your key stakeholder audiences. In a connected world, panic spreads at warp speed, and there are few groups as closely connected as Silicon Valley entrepreneurs and VC-backed startups. With an announcement of this significance, disclosure via perfunctory press release is not nearly enough. SVB should have engaged more to explain the situation to large depositors and provided them with a forum to ask questions. Don’t assume your investors and stakeholders will be able to fill in the blanks of a formulaic press release.
- Strike the right balance between acknowledging the issue and conveying a sense of calm. This is not as simple as stating “remain calm, all is well” – we’ve seen how that worked out for Kevin Bacon in the final scene of Animal House. Be visible, be explicit and use factual proof points to communicate effectively. Coming across as harried, fearful or desperate is a recipe for disaster.
While an actual capital crunch is what precipitated the downfall of SVB, botched communications – particularly a failure to meaningfully address large, vocal, well-connected depositors – started an old-fashioned bank run. This strategic misstep accelerated SVB’s collapse, expanded the contagion, and sent aftershocks throughout the global banking system, Silicon Valley, and small businesses across the country and beyond.
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