RIP SVB, 1983–2023 March 13, 2022 Sign Up | Made in Canada IN THIS ISSUE Estimated read time: 6 min 💸 A bank goes belly up 🥞 Rates stay flat 👟 Adidas profits go down This pizza guy was one of the few people not worried about getting their money from Silicon Valley Bank last week. A hugely popular bank for startups, SVB was taken over by federal regulators on Friday after a bank run left it unable to cover withdrawals. For more on the second-biggest bank implosion in history, see the Big Important Story below. | Getty Images THE WEEK IN MARKETS Big Tech’s Bedford Falls Moment Well, that was a crazy week. And weekend. But at TLDR we’re here to offer a grain of salt if you’ve been mainlining American Twitter panic: everything is probably not quiteas crazy as some people think. What are we talking about? SVB — Silicon Valley Bank, the 16th-largest bank in the U.S., imploded last week. The first hints of trouble emerged Wednesday, when SVB, which served a plethora of tech clientele, told investors it was short on cash. The 2023 version of an It’s a Wonderful Life-style bank run followed on Thursday (triggered in part by tweets from Mr. Potter Peter Thiel). And by Friday the bank was no more, raising concern about the health of the financial sector. As a result, U.S. regional banks fell a painful 16% on the week, while the big four U.S. banks slid a not-so-bad-all-things-considered 10-ish%. ($HEWB, a Canadian-bank index ETF, finished -5.5%.) Despite SVB’s demise, investors bet that the major U.S. and Canadian banks would ultimately be fine. And they got a lot more optimistic Sunday night after the U.S. government promised that SVB depositors would have access to all their money come Monday morning. We’ll see if anything shakes investor confidence as the week unfolds. THE WEEK IN ONE NUMBER $209 billion Silicon Valley Bank’s total assets, in USD, as of December 31. WHAT HAPPENED LAST WEEK IMPORTANT In a different type of bank drama, Tiff picked his own path. After a year of (rate) hiking hand in hand with the Fed, the Bank of Canada chair wiped what must have been a very sweaty palm and set off alone on Wednesday. He announced he’d keep interest rates at 4.5%, while it appears the Fed’s Jay Powell has been spooked into more rate bumps by the U.S. economy’s enduring strength. Why the split? Thanks to our mortgage system, higher interest rates have hit Canadians much harder than Americans and their 30-year home loans. The big question is whether inflation continues to fall. If it doesn’t, Tiff may have no choice but to rejoin Powell and hike again. Are Canadian pension plans the next big players in private equity?The CPP announced a massive $17 billion joint bid for software company Qualtrics last Monday, a sign of just how far pensions have shifted toward investments that aren’t stocks or bonds. Splitting from traditional markets is a big part of why the CPP dropped by only 0.6% the last 9 months of 2022, while the Nasdaq fell by 26.4% and the TSX sank by 11.4%. Considering that’s our retirement money they’re playing with, it’s a bet we all hope continues to pay off. INTERESTING People love cash ETFs! Bay Street?Not so much.Retail investors have been pouring money into cash ETFs — funds that bundle smaller deposits to earn benefits usually reserved for rich folks, like 5% yields with no restrictions on when you can get your money back. No surprise, some banks hate them, since they lure cash away from more profitable (for banks) offerings like GICs and HISAs. Since “we need more money” isn’t that convincing of an argument against the funds, banks came up with a new one, claiming that the lack of withdrawal restrictions could eventually create other liquidity issues for the banks (though not nearly as drastic as what we saw with SVB). Regulators are investigating while investors hold their breath. Adidas profits drop by Yeighty-three percent.On Wednesday, the German shoe company revealed fourth-quarter operating losses of $1 billion. (The first quarterly earnings report after cutting ties with a Grammy-winning Hitler aficionado is always a toughy.) Plus, they’re stuck with $1.7 billion of those funny-looking Yeezy shoes. Adidas’s new CEO already labelled 2023 a “transition year,” so it’s hard to imagine good news coming anytime soon. FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🪀 $41M in unsold bobbleheads will nod all the way to the landfill after toy company Funko overestimates demand. Source 🐛 Surprise! Those trendy parasite cleanses you see on TikTok are fake; the only parasite here is TikTok. Source 🤖 Slack will have ChatGPT in it soon in case you need help writing “On it!” Source 🐔 U.S. might vaccinate chickens against bird flu outbreak since most of them refuse to mask. Source CRASH & BURN TO THE MOON 👙 Just in time for Women’s Day: Victoria’s Secret announces its unpopular fashion show will dust off its wings and return. Source 🍸 Newly announced SunnyD Vodka Seltzer lets those who aren’t already drinking to forget childhood drink to remember it. Source 🍃 BC cannabis company whose stock soared after announcing it would be selling cocaine will stop getting high before writing press releases. Source 📵 Jail is actually starting to sound all right: prosecutors request SBF be limited to a flip phone while out on bail. Source WHO CARES WHAT’S UP THIS WEEK U.S. inflation numbers for February come in (Tuesday).“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” — Jay Powell The final season of “Ted Lasso” premieres (Wednesday).“We’re excited.” — the TLDR staff except for Jared and Sarah, who might be dead inside. SHARE TLDR WITH YOUR FRIENDS 🤝 Put this link in your group chats, your Slack threads, tattoo it on your back — whatever works for you! THE BIG IMPORTANT STORY BANKING Tech’s Favourite Bank Went Under. Should Canadians Be Nervous? Silicon Valley Bank’s collapse on Friday was the second-biggest bank implosion in history. The bank was not that well known in the U.S., and certainly not here in Canada. But it was the bank of choice for a great deal of the tech industry in, yes, Silicon Valley. SVB funded nearly half of U.S. venture-backed tech and health-care companies, plus Canadian brands including Shopify. So what happened? And is there a chance of contagion spreading throughout the American banking sector — or, God forbid, into Canada? Here’s how it went down. What happened? There was a tech boom in 2020 and 2021, and SVB was a big part of it. Their deposits nearly doubled in 2021, growing from US$116 billion to $211 billion. The bank, in turn, used that cash to do something banks generally do: try to make a profit by loaning it out for interest, and buying investments like bonds. The trouble for SVB was that it bought bonds when interest rates were low (you might remember those days; they were just a year ago!). Then, when rates shot up, those bonds were suddenly worth a lot less than planned. Higher rates also meant tech companies needed their saved cash to continue to operate. To cover the new wave of withdrawals, SVB had to sell a bunch of its bonds at a steep loss. When the bank announced those losses, customers panicked — and VCs fuelled the fire. Clients tried to withdraw US$42 billion in one day from SVB. It was a good old-fashioned bank run. SVB couldn’t keep up, and on Friday, American regulators took the bank over (along with Signature Bank, which they deemed to be in a similar situation). Sunday they held an auction to try to sell SVB and get people as much money back as possible. In the meantime, though, clients were left with challenges. Like making payroll. One company reportedly had to cancel a planned layoff because it no longer had the cash to pay severance. Will people get their money back? The U.S. government insures every bank deposit up to US$250,000, but lots of companies had millionsin their accounts. A whopping 93% of SVB’s deposits weren’t insured, putting that money at risk. But late Sunday, the Fed announced that all depositors would be made whole and have access to their money on Monday morning. It also put measures in place to make sure other banks could get emergency loans to cover any obligations. What does this mean for other banks? Before the Fed news came down, there was a degree of panic surrounding smaller U.S. banks, some of which halted trading on Friday. For larger U.S. banks and those in Canada, the response was considerably more muted. Investors even turned optimistic when the situation was resolved Sunday night. Other banks shouldn’t meet the same fate because they are under stricter regulations (cough, regulations SVB argued against) and have less exposure to the tech industry. Plus, they now have an effective government guarantee for all deposits, making future bank runs a lot less likely. —Sarah Rieger OTHER VERY GOOD READS ♀️ The Economist’s Glass-Ceiling Index* The magazine’s annual measure of the role of women in the workforce | The Economist 🛒 Inside Flipkart, the Indian Giant Beating Amazon India’s e-commerce giant fights to stay on top | Rest of World 🫰 Money Diaries: Margaret Atwood The award-winning novelist on power and money | Wealthsimple 🪙 The Big Coin Heist It seemed too large to steal, and yet... | Hazlitt *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER Basically, the Power Ranger you liked at age six determines where you bank now... THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Brennan Doherty (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Sara Black McCulloch (fact checker), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. PRIVACY POLICY UNSUBSCRIBE TLDR is offered by Wealthsimple Media Inc. and is for informational purposes only. Any views expressed are those of the individual author and/or of Wealthsimple Media Inc., not of Wealthsimple Financial Corp or any of its other subsidiaries or affiliates. The content in TLDR is not investment advice, a recommendation to buy or sell assets or securities, nor any other kind of professional advice. TLDR is not a research report and should not serve as the basis for making investment decisions. Wealthsimple Media Inc. does not endorse any third-party views referenced in this content. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only. Always research before investing. © 2023 Wealthsimple Media Inc.