Last week ended with the worst day for bank stocks since the financial crisis of 2008. The collapse of Silicon Valley Bank, the country's third-largest bank, sent shockwaves through the industry. Craig Coben is a former global head of equity capital markets at Bank of America and now a managing director at Seda Experts, a financial services advisory firm. "It's a wake-up call for the banking industry," Coben said. "We need to start looking at the underlying causes of this failure and make sure we don't repeat them."
A Goldman Sachs fund manager knew there was going to be trouble when he read a Wall Street Journal story that accused Outcome Health of misusing funds. The article, which came out on the same day that Silicon Valley Bank announced its failure, reported that the bank had invested in the healthcare technology company. The Goldman fund manager immediately began to scrutinize the bank's other investments, most of which were in the tech sector.
The Goldman fund manager's analysis revealed that the bank had invested heavily in startups, many of which had shaky finances. He also noted that the bank had made numerous loans to companies that were struggling to repay them. He concluded that the bank had taken on too much risk, leading to its eventual collapse.
The Goldman fund manager's findings were echoed by other banking experts. UK inflation will sink below the Bank of England's 2% target by the end of the year if the £2,500 ($3,014) household energy bills cap is implemented, according to the Centre for Economics and Business Research. This could put further pressure on banks, which are already dealing with a slowing economy and rising loan defaults.
The collapse of Silicon Valley Bank has brought on turmoil in the banking industry. Gary Cohn, a former Goldman Sachs executive and top advisor to President Donald Trump, said that the failure of the bank could have been avoided if regulators had taken a closer look at the bank's portfolio. "We should have seen this coming," Cohn said.
In response to the collapse of Silicon Valley Bank, Goldman Sachs issued a statement. "We reiterate our overweight recommendation on the sector and would use any large selloff as an opportunity to add risk," Goldman Sachs said. The bank also said that it is monitoring the situation and will take any necessary action to protect its clients' interests.
Gary Cohn, the previous director of the National Economic Council under former President Donald Trump, discussed the Silicon Valley Bank failure with Bloomberg TV. Cohn said that the bank had become too aggressive in its lending and investing practices. "They were going after deals that were too risk," Cohn said. "They were taking on too much leverage and not adequately assessing the risk."
Goldman Sachs bought the portfolio of underwater securities from SVB that crystallized a nearly $2 billion loss at the now-failed bank, according to documents seen by Reuters. Goldman Sachs said that it bought the securities for a fraction of their face value and that it will not lose any money on the deal.
The banking industry is also facing other headwinds. China is likely to install nearly three times more wind turbines and solar panels by 2030 than it's current target, helping drive the transition to cleaner energy sources. This could spell trouble for banks that are heavily invested in fossil fuels, as they may be forced to write down their investments.
The troubles in the banking industry have been exacerbated by the COVID-19 pandemic. Banks are facing rising loan defaults as businesses struggle to stay afloat. In addition, banks are having to set aside billions of dollars to cover potential losses from bad loans.
The banking industry is at a critical juncture. Goldman Sachs and other banks are taking steps to mitigate the risk of further losses, but the underlying problems remain. Banks are having to reassess their risk-taking strategies and seek to find a balance between risk and reward.
The Goldman fund manager's warning about the banking industry is a reminder that banks need to be more proactive in managing their risk. Banks must ensure that their investments are sound and that their lending practices are prudent. Banks also need to be more transparent about their activities and be willing to take corrective action when necessary.
The collapse of Silicon Valley Bank has shone a spotlight on the banking industry. Banks must now take steps to ensure that the mistakes of the past are not repeated. As the Goldman fund manager noted, banks must take a more cautious approach to risk-taking and be more transparent about their activities.
The banking industry is in a state of flux. Banks must reassess their risk-taking strategies and be more transparent about their activities. Goldman Sachs and other banks must take steps to ensure that the mistakes of the past are not repeated. Only then can the banking industry emerge from this crisis stronger and more resilient.
