Picture your Future. Save for it by earning 1.5% on a 1-year Term Deposit Account! Learn more.

Franklin Templeton Thoughts: Making sense of SVB, a unique bank with a classic problem

Why did Silicon Valley Bank fail? And what are the implications for investors? Stephen Dover, Head of Franklin Templeton Institute, provides his latest update on the unfolding situation.

Silicon Valley Bank’s (SVB) collapse sent shockwaves across public and private markets over the weekend, and created a volatile start to the week. How are our investment teams making sense of SVB’s collapse? Monday morning, I sat down with four of our senior investment professionals: Dr. Sonal Desai, Chief Investment Officer, Franklin Templeton Fixed Income, Ryan Brist, Head of Global Investment Grade Credit, Western Asset, James Cross, Co-Head of Venture Capital Investing, Franklin Equity Group, and Dan Nuckles, Research Analyst – Banks and Financials, Franklin Equity Group. We discussed why Silicon Valley Bank is unique, what may have caused the problem and where we see opportunities.

Silicon Valley Bank is a unique bank with a classic problem. SVB was focused on startup companies primarily in technology. Startup and venture capital firms held large deposits at SVB that were not guaranteed by the Federal Deposit Insurance Corporation (FDIC). SVB served half of all venture-backed companies in the United States.1 SVB failed because of a mismatch between its short-term depositors who were withdrawing assets and its longer-term assets, mostly US Treasures, that had dropped in value as interest rates increased. This bank failed because it did not have a diversified client base and lacked strong risk management, which ultimately ended in a bank run.

Regulators and Washington calmed concerned investors. The stock market movement, especially regional banks, on March 13, 2023, tells us that there are still concerns with people moving their deposits away from smaller banks to larger banks, which could cause additional instability. However, the recent Fed action seems to have calmed some of the initial fears heading into the weekend.

The Federal Reserve (Fed) may have created a bubble. This is a problem of the Fed’s own making by keeping rates very low over an extremely long period of time, leading to a general “asset bubble.”

Overvalued venture companies outlook will return to normalcy. There was a dramatic rise in valuations of enterprise software companies between 2019 and 2021. Valuations are now returning to more reasonable levels which will improve the longer-term outlook for venture returns. In addition, venture investors are now looking beyond firms that produced corporate software to batteries, chemicals, nuclear fusion or clean energy.

While there are still concerns, we see multiple opportunities in the market now. There continue to be opportunities in fixed income—mostly in Treasuries and high-quality corporate debt. In the equity market, there may be opportunities in some financial stocks, but very careful selection is needed.

While we know there will be reverberations and volatility, there are also potential opportunities.


Franklin Templeton Disclaimer:

Important legal Notice

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Distributors, LLC, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com – Franklin Distributors, LLC, member FINRA/SIPC, is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.

 CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Value securities may not increase in price as anticipated or may decline further in value.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.

Join MeDirect today to access the tools you need to put your money to work on your own terms.

Latest news articles

Why we stay risk-on in the short term
All News

BlackRock Commentary: Why we stay risk-on in the short term

Last week’s central bank actions buoyed market sentiment, prompting BlackRock to maintain a pro-risk stance in their tactical outlook for the next six to twelve months as Q2 begins. Despite lingering concerns about persistent U.S. inflation and diminishing expectations of Federal Reserve rate cuts, they observe that stock markets are resilient.

Experience better Banking

The sooner you start managing your money, your way, using the best-in-class tools, the sooner you’ll see results. 


Sign up and open your account for free, within minutes.

MeDirect_Multi-Devices-cards

Login

We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.