News round-up, March 15, 2023
Editor's thoughts…
In the world of Silicon Valley geniuses, anything is possible, ...finding God, Cleopatra's tomb... making the planet Mars habitable, and now it can also happen... SVB creditors form group ahead of possible bankruptcy - WSJ
Now, the question really begs asking: Where is the global economy heading?
Quote of the day…
Putin says Germany remains "occupied"
REUTERSMost read…
SVB creditors form group ahead of possible bankruptcy - WSJ
Creditors of Silicon Valley Bank's (SIVB.O) parent company have formed a group in anticipation of a potential bankruptcy filing, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.
The 72-hour scramble to save the United States from a banking crisis
The White House was aware of the potential for contagion between large banks.
SIVB▼-60.41%
The Washinton Post Story by Jeff Stein, Tony Romm, Gerrit De Vynck, NOWEU power rejig may only solve tomorrow’s problem
Von der Leyen’s promised reform luckily shies away from the most radical calls for change. Under the current system, wholesale electricity prices are set by the most expensive energy source, which last year was ballooning gas.
Reuters By Lisa Jucca, Editing by Germán & CoPutin says Germany remains "occupied"
Western countries, particularly Germany, have reacted cautiously to probes into the blasts which hit Russia's Nord Stream gas pipelines last year, stating they believe they were a purposeful act, but failing to specify who they suspect was responsible.
REUTERS, Editing by Germán & CoSilicon Valley Bank’s Fall Is a Passing Cloud Over Clean Energy
Japanese and European banks have traditionally been big clean-energy lenders, too
SVB made about $1.2 billion of project finance loans to U.S. renewable energy projects in 2022.
The Wall Street Journal By Jinjoo Lee, March 14, 2023
“We’re living in a volatile world…
it’s easy to get distracted by things like changeable commodity prices or a shortage of solar panels. But this wouldn’t be true to our purpose – we can’t allow ourselves to lose sight of our end goal; said Andres Gluski, CEO of energy and utility AES Corp
Image: Germán & CoSVB creditors form group ahead of possible bankruptcy - WSJ
Creditors of Silicon Valley Bank's (SIVB.O) parent company have formed a group in anticipation of a potential bankruptcy filing, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.
March 14 (Reuters) - Creditors of Silicon Valley Bank's (SIVB.O) parent company have formed a group in anticipation of a potential bankruptcy filing, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.
Embattled lender SVB, which was shut down last week, on Monday said it was exploring strategic alternatives and had hired a restructuring veteran, but has not said it was planning to file for bankruptcy.
The creditor group includes Centerbridge Partners, Davidson Kempner Capital Management and Pacific Investment Management Co, the report said, adding that they were being advised by PJT Partners Inc.
The companies did not immediately respond to Reuters requests for comment.
Image: The New York TimeThe 72-hour scramble to save the United States from a banking crisis
The White House was aware of the potential for contagion between large banks.
SIVB▼-60.41%
The Washinton Post Story by Jeff Stein, Tony Romm, Gerrit De Vynck, NOWt seemed like a simple question: Did the treasury secretary have any concerns about the economic risks posed by Silicon Valley Bank?
It was Friday morning, and a wave of public panic had started to spread about one of the tech industry’s leading financial institutions. Seated for a roughly three-hour grilling on Capitol Hill, Janet L. Yellen replied with a calm nod and a glance at her notes: “There are recent developments that concern a few banks that I’m monitoring very carefully,” she said.
“When banks experience financial losses,” she added, “it is and should be a matter of concern.”
Yellen’s comments foreshadowed the start of a scramble behind the scenes at the White House. New fears began to surface about a potential run on Silicon Valley Bank, threatening widespread devastation not just for California, its companies and workers, but perhaps the U.S. economy writ large.
In a meeting, Jeff Zients, the chief of staff; Lael Brainard, the national economic director; and Cecilia Rouse, one of Biden’s top economic advisers, alerted the president to a type of danger not seen since the financial crisis nearly 15 years ago: The failure of Silicon Valley Bank, a little-known entity to most Americans, could trigger a broader crisis in the nation’s banking system.
“We were already very focused on that when we spoke to the president Friday morning,” according to one White House official. “We were already alert to the potential this could lead to contagion and could implicate a series of what are pretty large banks.”
A frenetic, roughly 72-hour race soon unfolded in Washington to confront the threat of a full-blown financial meltdown. A bank was failing. Billions of dollars — in workers’ paychecks, and tech companies’ balance sheets — were about to be lost. And the government faced fears of an economy in free fall, rekindling nightmares of the Great Recession in 2008.
Ultimately, the Biden administration decided to complete a major intervention with extraordinary speed, acting to preserve deposits at Silicon Valley Bank while safeguarding the finances of other firms on the precipice of ruin. Their efforts showed the extent to which the president was willing to risk being accused of providing emergency help to bail out the financial sector — a charge the White House adamantly denies — in a bid to keep the system stable and stave off a worsening crisis.
This account is based on interviews with 20 people familiar with the decision-making process, including top White House officials, leading congressional lawmakers and tech industry executives. Many of them spoke on the condition of anonymity to describe private conversations that carried market-moving stakes.
The administration had until Asian markets opened on Sunday to ensure that SVB customers could withdraw funds and businesses could pay their workers — all without sparking similar runs on other U.S. banks. Top aides at banking regulators over the weekend spotted surges in requests for cash withdrawals at banks that didn’t appear to be connected to SVB, three of the sources said.
In the back of their minds, government officials recalled all too well the fallout from the 2008 financial crisis, and the immense political blowback that followed over the government’s use of taxpayer funds for what was widely seen as an unfair bailout. Over the weekend, they began to see banks outside of tech-heavy New York and California showing signs of volatility. Bank executives told federal officials that major customers had warned they would withdraw their money and move it to a Wall Street giant for safety first thing on Monday morning.
The Biden administration faced further pressure from Silicon Valley executives, including the co-founder of LinkedIn, as well as a wide array of influential California Democrats such as former House speaker Nancy Pelosi. They amplified the urgent need for action when many financial analysts outside Washington remained unaware of how bad things could get.
“We had to protect the depositors, we had to protect small businesses … [and] make sure this doesn’t become systemic,” said Pelosi, noting she had heard from another unnamed bank executive who said customers were withdrawing cash at higher rates. “We don’t want contagion.”
Instead, the administration managed to calm markets, after a day of turbulence that cut deeply into banks’ stocks Monday. And it prevented the sort of panic that might have resulted in countless Americans withdrawing money from their banks, which could have created damaging instability in the financial system.
“Within Treasury, there had been some initial concern about going too far in their response. By Saturday, the dynamic had shifted overwhelmingly in favor of doing something big,” said one person in direct communication with several senior Treasury officials, speaking on the condition of anonymity to describe private conversations. “They were becoming increasingly concerned about a bloodbath on Monday.”
Worry starts in California
In the tech and venture capitalist circles that Silicon Valley Bank served, the anxiety had been mounting for days.
It began with a public notice March 8 that the firm had offloaded $21 billion worth of securities and was moving to sell another $1.25 billion in its own stock to shore up its balance sheet. The news came as a surprise to many of SVB’s investors and customers. Moody’s Investor Services, an independent credit rating firm, downgraded SVB after reviewing the bank’s business.
By the evening, texts, calls and emails began bouncing between tech investors and start-up founders. The news traveled especially fast in the tightknit Valley, where new companies often share the same stable of investors, said Isa Watson, the CEO of New York-based social media start-up Squad, which banked with Silicon Valley Bank.
Soon, federal policymakers and SVB’s customers alike were starting to worry about whether the bank would make it through the weekend. Around 9 a.m. Eastern on Thursday, Union Square Ventures emailed its portfolio companies to warn them about the situation, according to a person who received the email. USV is one of the most influential early-stage venture capital firms and was an early investor in Twitter, Etsy and Duolingo. Its portfolio includes dozens of start-ups, many of which banked with SVB.
Watson spoke to several investors, some of whom said to pull her company’s money out, while others cautioned not to make a rash decision, she said. She decided to wait. But many of Silicon Valley Bank’s customers did not. On Thursday alone, roughly $42 billion fled SVB accounts, according to California’s financial protection authority — a full-blown run on the bank.
Wall Street halted trading in SVB shares Friday as its stock price plummeted. State and federal regulators moved to close the bank around noon Eastern — 9 a.m. at most of its branches — in a surprising development because it happened during normal business hours.
In the hours to follow, the extent of the problem became clear: Silicon Valley Bank held an unusually high percentage of its assets in Treasury bonds. When the Federal Reserve raised interest rates, the value of existing bonds — a normally safe asset — went down. So the bank could not sell those bonds easily to make good on customers’ deposits as panic set in, and many flooded the bank seeking to withdraw their funds.
Many of the bank’s customers, meanwhile, were not the usual fare — they were investors, companies and other large institutions. It had more than $170 billion in deposits by the end of December, but 90 percent of them exceeded $250,000, the amount up to which the federal government insures in the event of a collapse.
By Saturday, Yellen, Federal Reserve Chair Jerome H. Powell, and Federal Deposit Insurance Corp. Chairman Martin J. Gruenberg convened for the first of several emergency meetings that would lead to extraordinary action. They agreed to move forward to ensure bank depositors were protected — at no taxpayer expense — in a way that would ensure the payrolls of companies that had banked at SVB could operate normally by Monday. Otherwise, they feared a cascading set of consequences would leave many Americans out of work. They also determined to announce the plan before Asian markets opened Sunday night.
Compounding the deadline, the Biden administration faced calls for urgent action from some of the biggest names in Silicon Valley, who wanted to see all depositors — regardless of their size — made whole.
Sounding alarms were the likes of Reid Hoffman, the founder of LinkedIn and a partner at Greylock, a major venture capital firm. A prolific donor to Democrats, including Biden, he took his concerns to Democratic lawmakers and administration officials. Ron Conway — another of the area’s leading investors, with original stakes in Airbnb, Facebook and Google — worked with Pelosi and Gov. Gavin Newsom to put pressure on the White House, Treasury Department and elected officials.
More than 600 tech executives, engineers and investors piled onto a hastily arranged, late Friday call with Rep. Ro Khanna (D), whose Bay-area district includes the headquarters for Silicon Valley Bank. Publicly, Khanna soon emerged as a forceful voice calling for the Biden administration to rescue the bank’s depositors, warning about broader financial shocks to come.
Eric Barnes with FDIC stands outside Silicon Valley Bank in Menlo Park, Calif.© John Brecher for The Washington Post
The lobbying blitz reflected a broader sea change in the normally libertarian tech industry — one that typically tries to ward off federal intervention. Now, many of those same voices were calling on the Biden administration to act and protect an ecosystem in which they had a large stake.
California lawmakers, meanwhile, mounted their own pressure campaign in Zoom calls and other contacts with Biden administration officials. They immediately began to hear from voters, business owners and political donors, who feared the economic blow that the bank’s collapse could bring.
“When I went to do a little grocery shopping, I couldn’t help but notice a lot of people at the banks,” said Rep. Anna G. Eshoo, whose Golden State district includes a portion of the tech industry, recalling her concerns over the weekend.
Rep. Maxine Waters (Calif.), the top Democrat on the financial services committee, started raising the issue with the FDIC late Friday. Rep. Zoe Lofgren (D), who leads the California delegation, by Saturday evening organized the first of several meetings between a wider array of state lawmakers and federal banking regulators.
Initially, Democrats expressed their broad belief that the government, first and foremost, should try to secure the sale of Silicon Valley Bank. But as the potential dangers became more apparent of letting uninsured bank deposits evaporate, party lawmakers shifted toward trying to persuade the administration to take any action necessary to stave off crisis.
California members told administration officials stories of local businesses that stood to suffer in the event of a financial catastrophe, even beyond tech. In one example, they pointed to a payroll processor that parked its money at SVB and served nearly 1 million workers — people who could miss paychecks if large depositors weren’t rescued. Khanna, meanwhile, pointed to a local food bank that had relied on the now-failed firm.
Warnings informed Biden’s decision
The administration still faced obstacles to sweeping action. Biden had reservations about approving a plan that could be spun as a bailout for bank shareholders. Sen. Bernie Sanders (I-Vt.) was publicly warning against a bailout as well.
The White House needed a plan that would not further alarm financial markets. SVB’s collapse was public, but few outside the government knew yet that Signature Bank — with more than $100 billion in assets — was heading toward failure too. Officials feared that Signature’s collapse on the heels of SVB’s could have a much greater ripple effect, and they wanted to make sure the news surfaced at the same time as the administration’s sweeping rescue plan.
Federal Reserve officials had access to the overnight filings of all the banks and their cash needs, giving them the ability to estimate their liquidity. The information was passed to the Treasury Department, with Yellen — a former Fed chair — serving as the key conduit between the central bank and political leadership at the White House.
Inside the White House, responsibility for managing the crisis fell primarily to Zients, Brainard and White House Deputy National Economic Council Director Bharat Ramamurti. Brainard had only been on the job for weeks but was almost perfectly situated to respond to a banking crisis, having recently left the Fed after more than eight years.
Deputy Director of the National Economic Council Bharat Ramamurti during a briefing Aug. 26.© Demetrius Freeman/The Washington Post
Although administration officials had largely decided by Saturday night that all depositors must be protected, they also worried about how to ward off the perception that they were acting primarily to bail out the rich and well connected who had been pressing for help. The plan does not protect the SVB’s shareholders or executives.
“There was a lot of concern about: What is the messaging here?” said one person, who spoke on the condition of anonymity to describe private deliberations. “Are we just saving these rich people, or are we doing something to save the economy? How do we present that, and what do we demand in terms of accountability to make clear this is not favorable treatment for a select few?”
Biden has emphasized that the plan is focused on protecting workers and small businesses.
On Sunday afternoon, after Biden signed off on the plan, members of the FDIC and Federal Reserve boards voted unanimously to declare that the failures of SVB and Signature posed a systemic risk to the entire financial system. The Fed also announced a new mechanism to provide loans at favorable terms to banks under duress.
By Tuesday afternoon, the storm appeared to have calmed, and stock prices in the banking sector had stabilized. And yet other risks may lie just around the corner. The Fed is expected to continue raising interest rates this year in its campaign to thwart inflation, which could subject other banks to the same challenges.
“The weekend intervention dampened the immediate crisis,” said Bob Hockett, a Cornell University economist. “But continued rate hikes will simply bring more distress to industries — and thus to their banks — in the weeks and months to come.”
Image: Reuters GraphicsEU power rejig may only solve tomorrow’s problem
Von der Leyen’s promised reform luckily shies away from the most radical calls for change. Under the current system, wholesale electricity prices are set by the most expensive energy source, which last year was ballooning gas.
Reuters By Lisa Jucca, Editing by Germán & CoMILAN, March 14 (Reuters Breakingviews) - Spooked by skyrocketing electricity prices, European Commission President Ursula von der Leyen in August declared the bloc’s power market was “no longer fit for purpose,” and promised an overhaul. Her pledge came after the collapse of Russian supply boosted prices of gas for delivery in the next month to a record level above 300 euros per megawatt hour, lifting electricity tariffs in tandem and hurting European consumers and companies. The proposed fix, to be unveiled on Tuesday, is however unlikely to address further short-term jitters.
Von der Leyen’s promised reform luckily shies away from the most radical calls for change. Under the current system, wholesale electricity prices are set by the most expensive energy source, which last year was ballooning gas. That prompted countries like Greece and Spain to propose to separate cheaper solar and wind generation from fossil fuels. That would have risked stifling green electricity production, which is cheaper, by culling the profit margin producers by design enjoy in the EU structure. The Commission wisely refrained from such a step.
To make Europe less dependent on volatile fossil fuel prices requires installing more green energy power. To this end, Brussels is proposing that the 27 member states foster the development of all future renewable energy projects through two-way contracts for difference (CFDs), according to a draft seen by Reuters Breakingviews. These price-support schemes, already popular in Britain to encourage low-carbon generation, are long-term agreements that provide for government compensation if electricity prices fall below a strike price. But they allow the government to keep the difference if prices rise above that set level.
The approach is not as market-friendly as fixed-price, subsidy-free power purchase agreements, which last year only made up 1% of total power generation. But by providing a fixed price below which suppliers will be reimbursed, it protects green power developers against a future scenario where electricity prices are way too low rather than way too high. That reduces their financial risks and cost of capital. When electricity prices are above the strike price governments can redistribute the additional revenue to vulnerable consumers.
The main drawback is the new CFDs will only apply to new projects. Hence it would likely take 5 to 10 years to spread across the EU. By then, greater availability of green power may have reduced demand for gas, and therefore its price. The risk of a resurgence of the European energy crisis, however, is all skewed to the near term.
Europe’s less radical reform of its power market is welcome. But it may only help solve tomorrow’s problem.
CONTEXT NEWS
The European Commission is expected to unveil on March 14 proposed reforms to the European Union power market aimed at shielding consumers from the wild price swings experienced in 2022.
Under the proposed reform, public support for all new green energy projects, including nuclear power ones, should be structured around two-way contracts for difference, according to a draft proposal seen by Reuters Breakingviews.
These contracts, usually signed between a government entity and a power generator, set a strike price below which compensation is offered by the government. If prices rise above the agreed level, the government is allowed to keep the difference. The proposal suggests governments should channel the extra revenue to consumers in time of high electricity prices.
The draft proposal also envisages trying to increase the number of Power Purchase Agreements, subsidy-free bilateral contracts that fixed the energy price at a set time for an agreed period of time, for example by offering state guarantee to protect producers from buyers’ failure. PPAs currently only cover 1% of total European Union electricity generation, according to data provider Independent Commodity Intelligence Services.
Image: design by Germán & CoPutin says Germany remains "occupied"
Western countries, particularly Germany, have reacted cautiously to probes into the blasts which hit Russia's Nord Stream gas pipelines last year, stating they believe they were a purposeful act, but failing to specify who they suspect was responsible.
REUTERS, Editing by Germán & CoMarch 14 (Reuters) - Russian President Vladimir Putin said Germany's response to the explosion on North Sea pipelines showed that the country remained "occupied" and unable to act independently decades after its surrender at the end of World War Two.
Putin, interviewed on Russian television, also said European leaders had been browbeaten into losing their sense of sovereignty and independence.
Western countries, including Germany, have reacted cautiously to investigations into the blasts which hit Russia's Nord Stream gas pipelines last year, saying they believe they were a deliberate act, but declining to say who they think was responsible.
"The matter is that European politicians have said themselves publicly that after World War Two, Germany was never a fully sovereign state," Russian news agencies quoted Putin as telling state Rossiya-1 TV channel.
"The Soviet Union at one point withdrew its forces and ended what amounted to an occupation of the country. But that, as is well known, was not the case with the Americans. They continue to occupy Germany."
Putin told the interviewer that the blasts were carried out on a "state level" and dismissed as "complete nonsense" suggestions that an autonomous pro-Ukraine group was responsible.
The pipelines were intended to bring Russian gas to Germany, though since Moscow's invasion of Ukraine a year ago Berlin has taken steps to reduce its reliance on Russian hydrocarbons.
Leaders in Berlin have been careful about apportioning blame for the explosions, with Defence Minister Boris Pistorius saying last week the blasts could have been a "false-flag operation to blame Ukraine".
Seaboard: pioneers in power generation in the country
…Armando Rodríguez, vice-president and executive director of the company, talks to us about their projects in the DR, where they have been operating for 32 years.
More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.
Image: Germán & CoSilicon Valley Bank’s Fall Is a Passing Cloud Over Clean Energy
Japanese and European banks have traditionally been big clean-energy lenders, too
SVB made about $1.2 billion of project finance loans to U.S. renewable energy projects in 2022.
The Wall Street Journal By Jinjoo Lee, March 14, 2023
Silicon Valley Bank’s fallout has clearly spooked some investors in clean energy stocks. How worried should they really be?
Even after a rebound Tuesday, residential solar company Sunrun, RUN -4.28% battery-storage company Stem STEM -0.69% and fuel-cell manufacturer Bloom Energy BE 1.05% are all down around 7% to 10% since SVB Financial SIVB -60.41% proposed a capital raise on March 8. All three companies are previous or current clients of the bank.
This is despite some of those companies’ assurances that their exposure to SVB is manageable. Sunrun, which disclosed Friday that it had $40 million of undrawn loan commitments from SVB, said in an emailed statement that the company is confident in its ability to replace those. Meanwhile, Stem said less than 5% of its cash and short-term investments could be affected. Both Sunrun and Stem stressed that they have relationships with a large group of banks.
Top 10 U.S. renewable project finance loanproviders in 2022: MUFG, KeyBank, SMBC, CoBank, National Bank of Canada, Silicon Valley Bank, CIBC, SocieteGenerale, CreditAgricole, HSBC.
While the initial stock-price reactions may have been overdone, they do underscore SVB’s importance as a lender in the clean-energy space. It made about $1.2 billion of project finance loans to U.S. renewable-energy projects in 2022, according to data provider Infralogic. That made SVB the sixth-largest lender in the space. Earlier this year, SVB announced that it has committed to provide at least $5 billion by 2027 in financing to support sustainability investments, including renewable energy.
Industry advisers say there is more than enough appetite from banks to fill the gap. Japanese and European banks have traditionally been big lenders in the space; they like the steady—albeit low—returns and the green profile of renewable energy projects using mature technologies. “I think there’s more money out there than good deals that can be done,” said Ted Brandt, chief executive officer of boutique investment bank Marathon Capital.
Still, access to lending could get slower for smaller clean-energy spaces where SVB carved out a niche, such as fuel cells and community solar projects, at least as other lenders get comfortable with those risk profiles. SVB estimated that it participated in about 62% of all community solar financings as of March 31, 2022. Credit assessment for community solar projects, which allow multiple households or small businesses to buy power from a local solar facility, can be more complex than those with a single utility or investment-grade corporate buyer.
Of course, many SVB bankers will likely land jobs at other lenders and could continue those relationships. SVB’s collapse is likely to leave a more noticeable gap for the types of early stage, small clean-energy technologies that are in the domain of venture capital.
Another thing worth monitoring is how much the fallout from SVB affects other regional banks, such as by prompting deposit withdrawals and limiting their ability to lend. Some regional banks are active lenders and advisers to clean energy projects. KeyBank, for example, was the second-largest provider of U.S. renewable project finance loans last year, according to Infralogic. Zions Bancorp and East West Bank are active lenders in the space, and U.S. Bancorp has been a regular tax equity provider. For now, that risk seems to be at bay: After a rout on Monday, regional bank stocks rebounded sharply Tuesday morning.
