The failure of three U.S. banks in recent days has sparked volatility across global equity markets. In the wake of those events, we wanted to share our perspective on Wasatch’s own bank holdings, and why we believe they are in a better position than the three banks that collapsed.
For background, Silicon Valley Bank (SVB) was placed into receivership by the Federal Deposit Insurance Corporation (FDIC) on Friday, marking the second-largest bank failure in U.S. history. Prior to SVB’s collapse, Silvergate Capital announced it would wind down operations. In addition, another institution, Signature Bank, was placed into receivership on Sunday.
Wasatch strategies do not currently own any of the three banks that closed. Further, we believe the few banks held in Wasatch strategies are structurally quite different from the ones that failed.
Why Our Banks Are Different
All three of the banks that closed had concentrated customer bases. Silvergate and Signature both focused heavily on the cryptocurrency industry, while the bulk of SVB’s customers were early-stage, and often venture-capital backed, technology companies. Further, two of the failed banks, SVB and Silvergate, had low loan-to-deposit ratios and relied on relatively large securities portfolios to support their deposits. These factors played a large role in the banks’ problems.
The banks held in Wasatch strategies are quite different, with more traditional loan-to-deposit ratios and relatively small securities portfolios. Further, our banks either focus on retail customers, or serve commercial clients across a diversified base of end markets.
In the coming weeks, we’ll continue to monitor any knock-on effects from the bank closures, but we have reached out to management teams from our banks and so far, they report that operations remain normal.
A Look at Technology
Outside of the banking industry, we continue to monitor how SVB’s collapse will affect the technology space, as many technology startups held cash or lines of credit with the bank. The regulators’ decision to protect the bank’s depositors means these startups will still have access to working capital to support their operations in the near term. But we expect some minor challenges for these businesses as they seek new banking relationships.
Across our own technology holdings, we do not expect much friction. We have very few holdings that had any exposure to SVB. More important, we tend to invest in companies that are self-funded and free cash flow positive, which gives them more control over their own destinies. We believe these characteristics should insulate them from the fallout of SVB’s collapse.
Thank you for the opportunity to manage your assets.
RISKS AND DISCLOSURES
This commentary is intended to provide you with information about factors affecting the performance of your Wasatch strategy. Portfolio holdings are subject to change at any time. References to specific securities should not be construed as recommendations to buy or sell shares ore those companies by Wasatch. Current and future holdings are subject to risk. Wasatch analysts closely monitor the companies held in the strategy. If a company’s underlying fundamentals or valuation measures change, Wasatch will reevaluate its position and may sell part or all of its holdings. Past performance is not indicative of future results. Information in this commentary regarding market or economic trends or the factors influencing historical or future performance reflects the opinions of management as of the date of this commentary. This commentary should not be relied upon for any other purpose.
Wasatch Advisors LP, trading as Wasatch Global Investors, ARBN 605 031 909 is regulated by the U.S. Securities and Exchange Commission under U.S. laws which differ from Australian laws. Wasatch Global Investors is exempt from the requirement to hold an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to wholesale clients in Australia.