A string of bank collapses in recent days has sparked panic in the financial sector, prompting extraordinary US government intervention to rescue depositors and sharp declines in bank stocks in the US and Europe.
However, some individuals and organizations made money amidst the turmoil.
Silicon Valley Bank CEO Greg Baker sold $3.6 million worth of shares in the company less than two weeks before the bank’s collapse, Rep. Drawing scrutiny from lawmakers like Roe Khanna, D-Calif., who called for the bank to return the damages.
Meanwhile, as panic grew and bank stocks tumbled over the three-day period over the Silicon Valley bank failure, $2.3 billion in profits flowed to short sellers, traders who claimed shares were falling, data firm S3 Partners said.
Eventually, after the bank’s collapse, a wave of new depositors opened accounts at some of the nation’s largest banks, such as JPMorgan Chase.
It is important to know who benefited from the banking crisis and why.
Silicon Valley Bank CEO Greg Baker
Financial filings Late last month Baker’s trust showed millions worth of shares sold, raising questions about what he knew about the looming financial problems facing the bank.
Khanna, who represents the district where Silicon Valley Bank is headquartered, called on depositors to return their money.
“I said it must be a money glove,” Khanna said Monday. “Whatever his intentions are, and we have to find out, that $3.6 million should go to the depositors.”
Silicon Valley Bank did not immediately respond to a request for comment.
Kevin Murphy, a professor of finance and business economics at the University of Southern California who specializes in executive compensation, said the stock selloff raises legitimate concerns.
“There’s no question it raises eyebrows,” Murphy said. “The optics are bad.”
However, the conduct may be “less problematic” than it appears, he added.
After the exercise price and taxes related to the sale, Baker stood to receive about $1 million, Murphy said, an amount that was a fraction of the $9.9 million in total compensation Baker received last year.
Baker’s stock options were set to expire in May, leaving him just a few months shy of the deadline, Murphy added. Stock sales fall within the conduct permitted by law.
“That raises a red flag,” Murphy said. “But I don’t put as much weight on it as a normal person.”
Still, the company may eventually recoup some or all of the money from Baker, he added, citing financial documents the company filed earlier this month.
“They have a policy in place,” he said. “There is an opportunity for the board to initiate recovery but it is somewhat limited.”
Short sellers
Another group of people who benefited from the Silicon Valley bank crisis are short sellers, investors who make money when stocks fall.
As shares of banks fell before and after the collapse of Silicon Valley Bank, short sellers made huge profits.
On the same day last week, shares of Silicon Valley Bank fell by 60 percent. The stock price of First Republic Bank, another stressed regional lender, fell 30 percent on Thursday to a 13-year low. It later rose after the big banks announced $30 billion in combined deposits at the bank.
In a 9-day period in early March, short sellers made $7.1 billion on $50 billion worth of investments, a stunning return of about 14%, S3 Partners managing director Ihor Dusanivskyi told ABC News.
“It’s a phenomenal return,” Dusaniewski said. “You’re catching lightning in a bottle.”
The success of short sellers in recent days has raised concerns about the potential role such traders could play in driving down Silicon Valley bank share prices, fueling panic on social media and fueling upcoming bank runs.
The impact of short sellers in the case of Silicon Bank deserves scrutiny, since its depositors were made up of a relatively small group of venture capital firms, tech startups and other large investors, said Connell Fullenkamp, a Duke University economics professor who studies short selling. , told ABC News.
“It’s something we have to take seriously in the case of Silicon Valley Bank because the community of depositors is Internet and tech savvy,” Fullenkamp said. “A big part of the story is how much communication there was between depositors and certainly this feedback loop of short sellers and depositors can make things worse.”
However, fear of the negative consequences of short selling in a banking crisis ignores the useful role played by such traders, he added.
“Without short sellers, we get this really strong positive bias that prices go up — it’s very easy to create stock price bubbles,” he said. “Short sellers are suspicious of those who put their money where their mouth is.”
Big banks
After the collapse of Silicon Valley banks, as uncertainty spread throughout the financial system, a flood of depositors opened new accounts at major US banks.
JPMorgan Chase, America’s largest bank, received a huge wave of customers and deposits worth hundreds of accounts and billions of dollars, a source familiar with the matter told ABC News.
Sources said that the bank has asked its employees not to target customers amid the financial crisis, but regardless, the number of customers has increased.
JPMorgan Chase declined to respond to a request for comment.
Other top banks, including Bank of America and Citi, have benefited from a similar flood of customers and deposits. Financial Times Reported.
Bank of America declined to comment; And Citi did not respond to requests for comment.
While some of the biggest banks received depositors, the nation’s biggest financial institutions took action Monday in an effort to stabilize the financial sector, putting $30 billion into First Republic Bank, one of the region’s leading lenders.
Bank of America, Citi, JPMorgan Chase, Wells Fargo and Goldman Sachs were among the big banks participating in the effort.
“This action by America’s largest banks reflects their confidence in First Republic and banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,” the banks said in a press release Thursday.
“Regional, mid-sized and small banks are critical to the health and functioning of our financial system,” the statement added.
