Portugal’s exposure from SVB collapse insignificant
Portuguese startups exposure to the fallout from the collapse of US tech bank SVB is negligible according to a leading venture capital fund founder.
Stephan Morais, Managing General Partner and Founder of Indigo Capital Partners, says that Portugal’s exposure to SVB is low because national startups are “not in the premier league” reports Observador.
According to the publication The Economist, SVB, which had US$212Bn of failed assets, was inadequately regulated, making it the biggest lender to collapse since the global financial crisis of 2007-2009.
The investors have been the most hard hit. SVB’s depositors – generally Bay Area tech startups with accounts holding in excess of €US$250,000 have their funds insured by the Fed.
Stephan Morais says that companies in which the venture capital has invested, and which have exposure to SVB, represent less than 15% of the portfolio and access to deposits solved the problem.
The Indigo Managing General Partner also pointed out that Portuguese startups exposure was minimal because Portugal doesn’t have that many startups in the US.
The President of the Portuguese Association of Banks (APB), Vítor Bento said this week that the SVB problem lay in the way exposure to public debt is accounted, which is different in Europe to the United States.
Speaking before parliamentary MPs at a meeting of the Budget and Finances Commission, the economist said that in Portugal there was no parallel situation to compare the way SVB operated and Portuguese banks worked, particularly in the way financial institutions’ exposure to government bonds is accounted.
He said that SVB was operating in a very different set up to the European one “particularly in the limits of liquidity that were not applied to that bank, and so supervision of the gap between asset and financial liabilities risk was not supervised in the same way as it would have been in Europe”.
Vítor Bento pointed out that in Portugal the situation was very different. “Exposure to public debt is around 16%, and that exposure depends on the way it is accounted. In the US it is different and that was SVB’s problem”.
Silicon Valley Bank collapsed on Friday but the Fed stepped in to guarantee customer deposits.
Established in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. It provided banking services to nearly half of all US venture-backed technology and life science companies.
SVB collapsed because depositors rushed to pull their money out. The root cause was that it has invested billions in US government bonds when interest rates were low or near zero.
When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio leaving a glaring financial black hole.
SVB announced that it had sold securities at a loss and would sell US$2.5Bn in new shares to plug the loss. That caused investors to panic and resulted in the run on the bank.