First Citizens Bank and Silicon Valley Bank are slowly integrating their tech stacks while keeping their individual digital road maps relatively separate. “There has been a period of isolation where First Citizens wanted us to complete our digital journey and road map,” Milton Santiago, head of global digital solutions at SVB, told Bank Automation News. […]
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Expense management solutions provider fintech Brex is saving an average enterprise customer up to 300 hours per month in employee expense compliance efforts through its AI-driven Brex Assistant. The virtual assistant, which launched last year, has saved customers an annualized $18 million by blocking out-of-policy spend through AI-powered controls, Erica Dorfman, executive vice president of […]
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The 2023 collapse of Silicon Valley Bank reminded fintechs and financial institutions of the importance of having a backup loan servicer in the case of a trigger event.
Examples of trigger events could include a bank collapse, a change in leadership or a servicer being unable to keep up with the level of collections needed to fund a portfolio, Blythe Lawton, senior vice president of marketing and business development at Vervent, tells Bank Automation News on this episode of “The Buzz” podcast.
“A lot of people sell backup servicing, but they don’t necessarily have what it takes to fulfill on the backup servicing if something should happen to the portfolio,” Lawton says.
In looking for a backup servicer, Lawton says, a fintech or bank should consider:
Hear about the increased demand for backup servicers in the wake of Silicon Valley Bank’s collapse in this episode of “The Buzz,” and as Vervent’s Lawton discusses how to select a backup service provider.
The following is a transcript generated by AI technology that has been lightly edited but still contains errors.
Whitney McDonald 12:38:15
Hello and welcome to the buzz of bank automation news podcast. My name is Whitney McDonald and I’m the editor of bank automation News. Today is April 2 2024. Joining me is blind lot in Senior Vice President of Marketing and Business Development at lending as a service provider bourbon, she will discuss the increased demand for backup Loan Servicing providers post the SBB collapse and share what people are looking for in backup service providers. Hi, blinds. Welcome to The Buzz.
Blythe Lawton 12:38:41
Thanks for having us. I am Blythe Lawton, I am the SVP of marketing and business development for vervets. I’ve been with a company seven years and we are a fintech. Who offers primary strategic services, things like credit card servicing, loan servicing capital markets, services, as well as backup servicing and credit card programs under our vent card division. So we’ve been around under our current CEO since 2008. And under the vent brand since 2019. And we’re excited to continue to be part of this industry. We’re a credible player, and we’re glad to be here and talking to you today.
Whitney McDonald 12:39:25
Great, well, thank you again, and welcome to The Buzz, we’re going to take a step back to 2023. And we all remember what happened in March of 2023, the banking crisis SBV collapsed, which triggered this importance of a backup service provider. So I would like if you could talk us through this, this new demand and this reminder of having a backup service provider following that collapse in March.
Blythe Lawton 12:39:56
Absolutely. So backup servicing provides security. And, as we saw last year, when you have a collapse, you have a large portfolio or a large bank, and you have a lot of portfolios and a lot of loans that are out there floating and not being managed by a servicing company. So you’re not you’re not collecting, you’re not you’re not collecting dollars, accounts are getting delinquent. So as you look forward post the SVP collapse, we see a lot more interest. verbund has been around for a lot of years, and we have a strong presence and capital market services. And as this collapse happened, we see more people becoming aware of the backup servicing need. And the service. Portfolios tend to be less educated, especially if they’re new or their startups, whereas the capital providers, all the big banks are very strong advocates of backup servicing because it protects their investment. And their goal is to have the insurance, if you will, on the money they’re lending to the portfolio so that if a trigger event or a you know, some sort of action were to happen, that they can protect their investment.
Whitney McDonald 12:41:10
Let’s talk about those trigger events. What might be an event that would have a startup or company saying Well, I’m glad I have this in place?
Blythe Lawton 12:41:21
Absolutely, it’s a great question. It’s not always dramatic, like a bank collapse, it could be, you know, a change in leadership, it could be a current service or a primary servicer who’s managing the portfolio but not really being able to keep up with the SLAs and the the levels of collections that are needed to continue the funding of the portfolio. That’s the most common reason for a trigger event. So let’s say you need to collect X percent, but you’re only collecting y, obviously, that’s going to be a concern to the capital provider and they are going to look to course correct. And of course corrections can be made, they may decide to trigger and move to a transition on the successor service or where the backup partner would come into play.
Whitney McDonald 12:42:12
Now you’ve shared with me these these six elements of backup servicing, maybe you could share with with our listeners, what those six elements are. Sure,
Blythe Lawton 12:42:20
things that are very important to have our asset experience, experience in a world of backup is huge. You know, a lot of people sell backup servicing, but they don’t necessarily have what it takes to fulfill on the backup servicing, if something should happen to the portfolio. So experience with asset classes and experience with adverse conditions is very, very important. So that’s one and also the people in play to manage those so they understand the nuances of what are happening and they can make smooth transitions. Scalability is another one if you don’t have scalability to support the servicing. So if you have a backup agreement, and your selling backup, but you don’t have operation centers, you don’t have a place to put the servicing if a trigger event would occur. So having scalable ality and the ability to scale quickly because no one wants to have their portfolio sitting on service without collecting. So having those open seats and that capacity, in order to take on the transition, the successor servicing immediately is critical. If you don’t have the recruiting flows, the seats, the it the setup, you can’t it’s like buying an insurance and not being able to pay a claim. Um, response time is also huge. Every day you’re not collecting as every day you’re not meeting the financial needs of your portfolio. So being able to transition if there is an event, quickly within 30 to 45 days is a key element of this and something that really drives credibility for those players who have had experience with trigger events and have been able to successfully transition within reasonable timeframes. Another one, I think I’m on for is the relationships. So having relationships with the investors with the warehouse providers with all the capital markets, participants are invaluable. You need to know the people, you need to know have the asset experience, but you need to also know the people and how to get things done. Because again, when you have an event with a backup servicing contract, and you’re trying to transition time is money. And so those relationships help clear things. And they also make sure that everything’s being done credibly and correctly. Advanced Notice you also the relationships also help a lot with knowing what’s coming down the line. You know, many times you have questions about a portfolio or corrections, things that need to be made. And there might be some conversation that happens upfront. But with those relationships, triggers usually aren’t a surprise. And that’s that’s a very important element. You want to know what’s happening before you have to make a formal industry notification. And then compliance compliance is the last thing. Anything in loan servicing or lease servicing has so much to do with compliance. There’s so many rules and regulations and having a solid oversight plan, you know, a plan of action, if you will, with the prospective backup if there’s a trigger event and having the oversight and the people to make sure that everything is handled in a legal and regulatory compliant way is critical. And the only way that you’re going to do that is by really understanding what is needed, you’re understanding the laws, the nuances of what loans the portfolio contains, and moving things through regulatorily and within the correct data security so that you’re compliant, and you’re able to take your servicing from one shop into the new shop seamlessly and seamless as a word I would strongly emphasize here. And then there’s also risk mitigation, having risk groups within your organization to oversee and really make sure that you are mitigating risk appropriately. It ties in a bit to compliance, but that’s also a very important component of transition.
Whitney McDonald 12:46:39
Now, with all of those elements in mind that you just broke down for us, which thank you for doing that. How does a FinTech really select their backup servicing provider?
Blythe Lawton 12:46:51
Well, they should be looking for experience, credibility capacity. And I’m gonna say response time swift timing, you know, but it really depends on the experience of the portfolio holder. So a lot of times it’s the capital providers who are driving the decision not driving the decision, but prompting the decision on whether or not there should be backup servicing and offering broad recommendations of organizations that are credible backup services. It’s ultimately the choice of the portfolio owners to get that backup servicing. But a lot of times, well, not a lot of times, depending on the experience level of the portfolio owner, they’re either going to know what to look for, or they’re going to need more guidance. And so there’s a lot of information about there on backup servicing, if you know where to look. But a lot of times newer portfolio owners or startups don’t always know where to look. And so there’s a lot of good advice within those industry relationships.
Whitney McDonald 12:47:56
Now, post SBB and we’re into a new year here. Have you guys seen an uptick in demand for bourbon, what are your clients really asking for or even prospective clients? What are those questions that are coming up?
Blythe Lawton 12:48:12
Oh, Mervyn’s, quite a stab left in the capital markets service space. So we have, you know, a lot of capital markets business across the thing, whether it be you know verifications custody backup, there’s a lot of services that we offer there. So we’re a very established incredible player within this mid space. So I would say we’re seeing a small uptick, but what we’re really seeing is increased scrutiny in ancillary services, things like our annual readiness assessment, where people are maybe doing more prep on certain portfolios to make sure that they’re even more prepared. With a contingency plan. We’re seeing people we’re seeing clients move from warm to hot back up, and then maybe back down to warm back up a little bit more. And we’re seeing more interest in the topic of backup servicing overall, if you’re in the space, you know, about backup servicing, and you know how important it is. But it’s one of those things that you don’t know about until you you don’t know what you need to know, kind of things until you need to know. So that’s what we’re really seeing a lot of.
Whitney McDonald 12:49:25
Okay, and what are, what are some of those considerations that that you don’t know, unless, you know,
Blythe Lawton 12:49:33
um, you know, just really understanding that backup servicing is something that that’s needed, you need the knowledge and experience to protect your assets. So, you know, you want the backup service thing, whether you’re in a time of strong performance, or when something that’s like an unexpected challenge happens with your portfolio. So, you know, in bourbons case, we’re ready to step in with solutions, that are proven solutions to preserve the investment, regardless of what happens, you know, it’s kind of I liken back of servicing to insurance quite a bit. And some of my peers have driven every once in a while, I’ll give a chuckle because I think I sound a little like a broken record. But it really is like insurance, you want it all the time, because you don’t know when something’s gonna happen, you can have an indication but you know, you don’t just buy car insurance for the day that you get in the accident. And backup servicing is very, very similar. Yes,
Whitney McDonald 12:50:29
and I mean, we’ve all been there, maybe not specifically on the on the backup service side, but yes, insurance or fleet insurance or wishing that you add something that you don’t have. But I like your point there too, about having it and when times are good, too, just to just to have that readiness in case an event does does come up. Now, we kind of talked backwards, we talked about 2023. And we talked about March of last year, but now we’re into 2024. I’d love to get your insight on what you’re watching for this year, when it comes to trends and keeping up with with what’s going on in the industry. So what are you watching for, as you as you get into deeper into 2024? I should say? Absolutely.
Blythe Lawton 12:51:19
So verbund Like everyone else is watching the macro economic landscape to see what changes they’re, you know, how the economy is faring, if it’s going to improve or deteriorate. So we’re watching that. And we’re since we are a business who works a lot in the b2b space, with the loan servicing on the capital market services. But we also have our fervent card division, where we work direct to consumers. And those are kind of weighted businesses where when one is is doing really well, the other is not. So we’re watching both sides of that on to see where we go and where we can add value for either our clients or for our DTC customers. On the back of on the capital markets, services front, you know, we’re really looking at ways to provide more coverage and more preparation for our clients. So ancillary services that we have always offered, but maybe we weren’t broadly marketing, because not as many people were taking advantage of them. But with the events of 2023. And everyone having a more conservative view going into 2024 and probably beyond. We’re looking at how we can add services farther up the capital markets funnel to make sure that people are protected, like I said, and those good times and bad times, and that could be anything from inventory backup, to the annual readiness assessment, to all the things with onboarding verifications, collateral management, we do a lot of different things, and we’re here for our partners and so we’re trying to help them be aware of all the steps they can take to keep their investment safe.
Whitney McDonald 12:53:08
You’ve been listening to the buzz, a bank automation news podcast, please follow us on LinkedIn and as a reminder or you can rate this podcast on your platform of choice thank you for your time and be sure to visit us at Bank automation news.com For more automation news
Transcribed by https://otter.ai
Whitney McDonald
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Welcome to Startups Weekly. Sign up here to get it in your inbox every Friday.
Thank you for subscribing to Startups Weekly. This week, I’m taking my parents to Yosemite to explore the snowy peaks and to see if my car can handle snow. In lieu of a regular Startups Weekly, I figured I’d dive in and give you a reminder of some of the biggest startup stories from 2024 — both on TechCrunch and our subscription sibling TechCrunch+.
Here are some of the biggest themes that have echoed throughout the startup ecosystem in 2023.
Image Credits: Bryce Durbin / TechCrunch
Some of the biggest startup stories on TechCrunch in 2023 were related to the deeds and misdeeds of those in the ecosystem.
By far one of our most-read stories this year was the murder of Bob Lee, best known as the creator of Cash App and former CTO of Square. He was tragically killed in a stabbing incident in San Francisco, in the otherwise usually quiet Financial District. Rolling Stone picked up the story from there, digging into who Bob Lee and his alleged murderer were.
The other big story was the trial of Theranos founder and CEO Elizabeth Holmes. She is now serving a prison sentence of 11 years and 3 months after being indicted for wire fraud in a scheme to defraud investors. Theranos, once valued at $10 billion, promised revolutionary blood testing technology but was exposed in 2015 for its nonfunctional technology, which posed health risks to patients. The subsequent unraveling of Theranos led to numerous lawsuits and government investigations. The case serves as a stark reminder of the consequences of fraudulent practices and that the “fake it till you make it” approach that can be prevalent among startups doesn’t always work out.
The other big “hmm, maybe you shouldn’t have done that” serial story of the year was the Sam Bankman-Fried trial, which extended over five weeks. It turned out to be a spectacle of evasion and memory lapses. The former CEO of FTX faced the jury for several days, delivering a testimony that was remarkable mostly for its lack of substance. When cross-examined by prosecutors about his past decisions and actions, Bankman-Fried’s responses were predominantly “Yup” (372 times), “Not sure” (117 times), and “I don’t remember” (73 times). He was found guilty on all seven charges of fraud and money laundering, and will be sentenced in March 2024. Around the same time, there will likely be a second trial, with a bunch of additional charges.
More from the courts and legal systems:
It’s not just the startups . . . : Former VC Mike Rothenberg, known for hosting extravagant parties, was convicted on 21 counts last month, including for bank fraud, false statements, money laundering, and wire fraud. The conviction brings his journey from a promising entrepreneur, launching a VC firm in 2013, to being a convicted fraudster to a close. He was originally charged with fraud by the SEC in 2018, which resulted him having to pay $31 million. Sentencing in the fraud case is scheduled for March.
I’m trying to reach you about your extended warranty: The FCC imposed a record $300 million fine on a robocaller operation for scamming people with fake auto warranty sales. This operation made at least 5 billion calls.
The Swiss army knife for hackers: Flipper Zero, a multi-tool hacking device, is on track to achieve $80 million in sales this year, a significant increase from its $25 million sales last year. Started in 2020, the device can manipulate various systems like garage openers and RFID card systems.
Image Credits: Brian Heater
The world of startups wasn’t just murders, fraud and shenanigans — some of our most-read stories this year were a lot more lighthearted, thank goodness.
One of the highlights was Apple’s 31 new emojis — including a shaking face for when you’re “shook” and a pink heart because, obviously, we need more heart colors. There are even two pushing hands that could mean “stop” or “high five” — because interpreting vague hand gestures is what we all needed more of. Want to spam your friends with a moose or a jellyfish? Apple had your back this year.
My other favorites in the more-or-less-quirky-news category:
[very recognizable drum riff]: MindGeek, the owner of adult entertainment sites such as Pornhub, Brazzers, and RedTube, was acquired by Canadian private equity firm Ethical Capital Partners. The terms of the deal were not disclosed.
Strap this computer to your face: Apple’s new mixed-reality (XR) device made a significant impact with its high-quality hardware and features. It boasts 24 million pixels across two panels and advanced optics. It has brand-new chips to ensure smooth performance without judder or frame drops, with accurate eye tracking and gesture control. Panzer tried it out, and I argued that the device would be a game-changer for startups operating in the space.
We’re getting a little bored of Elon’s antics: At some point, TechCrunch editor Darrell decided he had enough, and penned this piece — concluding that enough is enough.
Image Credits: Darrell Etherington with files from Getty under license
There can be little doubt that, above all, for better and for worse, 2023 was the year of AI.
OpenAI was on everybody’s lips. The company made GPT-4 universally available, which got everyone hella excited. It also gave ChatGPT the ability to browse the broader internet, which unlocked a world of functionality and excitement.
The darker side of AI got its time in the limelight as well. The advancement of AI porn generators, such as Unstable Diffusion, has raised significant ethical and societal concerns. These generators, which have improved in creating more realistic and diverse images, are posing some new risks — and continues to make the internet more toxic, especially for women (the majority of deepfake pornography targets women and is often used as a tool for harassment). We were also successful in tricking Lensa into generating NSFW content by putting crudely photoshopped photos into its source material. In short: maybe deepfakes-for-all is worse than we thought.
Another big AI drama story of the year was Sam Altman getting fired as OpenAI’s CEO. We put together a whole timeline, because, goodness, that was quite the saga.
Image Credits: Nikolas Liepins/Anadolu Agency / Getty Images
If there’s one thing startups love doing, it’s throwing curveballs. This year was no exception, and here are a handful of the most surprising ones:
A banking collapse: Everything was fine one moment, then suddenly one of the biggest startup banks — Silicon Valley Bank, or SVB among friends — took a nosedive. We put together a timeline of what happened, along with a wall of coverage and analysis. Venture debt was one of the big question marks post-collapse.
The DPReview saga: DPReview, a renowned digital camera review site, was shut down by Amazon after 25 years of operation, before Gear Patrol bought the property and revived it.
That submarine story: OceanGate trying to dip down to the Titanic and imploding in the process was everywhere for a hot moment. A whistleblower was fired in January 2018 after presenting a scathing quality-control report on the vessel to OceanGate’s senior management, including founder and CEO Stockton Rush — who later died onboard the submarine. We originally covered the company back in 2017 when it first revealed the plans to go 3D-scan the Titanic.
Is it a bird? Is it a balloon?: Pathfinder 1 is an electric airship that’s giving the Goodyear blimp a run for its money. At 124.5 meters long, it’s like the Hindenburg had a tech-savvy baby with a drone. With 12 electric motors and a penchant for helium (significantly safer than its high-explosive, Hindenburg-exploding hydrogen counterpart), it’s set to conquer the skies at a whopping 75 mph . . . eventually.
Round after round after round of layoffs: Woof.
TechCrunch+ is TechCrunch’s subscription service, offering in-depth analysis, exclusive articles, and comprehensive reports on the technology industry, startups, and venture capital. If you’re not a subscriber — well, you should absolutely subscribe.
My popular Pitch Deck Teardown series is up to more than 75 sample pitch decks, complete with analysis for what’s working and what ain’t. And, of course, there’s oodles of additional amazing content too. Here’s a handful of stories you may have missed:
From cloud to on-premise: After a decade of cloud transformations, sophisticated enterprises are now developing hybrid strategies to support critical data science initiatives, moving away from exclusive reliance on cloud computing and bringing workloads back to on-premises systems.
The evolution of layoffs: Back in July, we looked at how the era of tech layoffs was evolving, noting that while it was not over, it was losing some of its intensity and was developing into its own unique trend.
Stage appropriate over perfection: Startups should focus on creating minimum viable products that are laser-focused on answering specific questions, rather than trying to scale too quickly, wasting resources in the process.
Hey, OpenAI, generate a marketing strategy: In this case study, we showed how using OpenAI for generating marketing strategies led to significant improvements in SEO ranking on Google, resulting in a substantial increase in site traffic, domain rating, and backlinks in less than a year.
Build on someone else’s tech and get burned: An update on OpenAI’s ChatGPT allowed for PDF uploads. That was a spanner in the work for startups, especially those built around a feature gap in ChatGPT. It underscored the vulnerability of such businesses to changes in underlying technologies.
Growth is hard: The former CEO of PlanGrid reflected on key mistakes they made while leading the company to $100 million in annual recurring revenue, offering insights to help other founders avoid similar pitfalls.
Setting the stage for a battery gold rush: Volkswagen’s breakthrough in lithium-ion battery technology could significantly impact the automotive industry, especially as it grapples with increased costs due to inflation and supply chain issues.
F you, pay me: If an investor tells you not to take a salary after you’ve raised VC funding, tell them to go do something anatomically strenuous.
The best laid plans of mice and men: We examine the evolution of fintech over the past decade, looking on several hyped fintech ideas that ultimately failed to transform the financial services industry as intended.
To remote or not to remote: We looked at the shift in remote work startups, where initial enthusiasm for dedicated remote work tools has waned, as companies have adapted to a hybrid work model rather than a purely remote one, leading to challenges for startups focused solely on remote work solutions.
Here’s why your pitch deck sucks: In the year of AI, I built a tool that analyzes startup pitch decks (because of course I did — why wouldn’t I build a tool that puts me out of business) and found a ton of interesting data about what startup founders get wrong when they create pitch decks.
Oh, and because I just know you are crazy curious: The featured image of this post was taken with an iPhone 14 Pro Max. I created the bauble using the Circular Name Ornament creator from Cuttle Labs, along with a Glowforge Aura. After I reviewed the entry-level laser cutter from Glowforge in July, I decided that I just had to have one. Because, well, what kind of nerd would I be if I didn’t set shit on fire on a semi-regular basis.
Happy New Year — see y’all in 2024!
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Big banks are sitting on $650 billion of unrealized losses, Moody’s has estimated.
It’s a sign even Wall Street’s best-known names are feeling the heat from the Treasury-market rout.
Crashing bond prices sank Silicon Valley Bank earlier this year, and there may be more chaos to come.
Crashing bond prices sank Silicon Valley Bank in March — and there’s reason to believe that what triggered the California lender’s collapse may be haunting Wall Street again.
The brutal Treasury-market meltdown has hit some of the largest financial institutions hard, dragging down the share prices of big names such as Bank of America and fueling fears that the turmoil triggered by SVB’s bankruptcy may not be over just yet.
Here’s everything you need to know about unrealized losses, including why they’re dragging on bank stocks and whether they could trigger another financial crisis.
Treasury bonds — debt instruments the government issues to fund its spending — have been on a nightmarish run since the onset of the pandemic, with investors fretting about rising interest rates and the long-term viability of the US’s massive deficit.
BlackRock’s iShares 20+ Year Treasury fund, which tracks longer-duration debt prices, has plunged 48% since April 2020. Meanwhile, 10-year Treasury yields, which move in the opposite direction to prices, recently spiked above 5% for the first time in 16 years.
As a result of that sell-off, some of the US’s biggest banks are now sitting on unrealized, or “paper,” losses worth hundreds of billions of dollars. That means the value of their bond holdings has plunged, but they’ve chosen to hold on rather than offload their investments.
Moody’s estimated last month that US financial institutions had racked up $650 billion worth of paper losses on their portfolios by September 30 — up 15% from June 30. The ratings agency’s data still doesn’t account for a hellish October where the longer-term collapse in bond prices spiraled into one of the worst routs in market history.
These “losses” are not the same as debt, however, which describes actual borrowings that need to be repaid.
Bank of America is the big lender worst affected by the crash in bond prices, having disclosed a potential $130 billion hole in its balance sheet last month.
The other “Big Four” banks — Citigroup, JPMorgan Chase, and Wells Fargo — have also racked up unrealized losses in the tens of billions, according to their second- and third-quarter earnings reports.
Silicon Valley Bank failed in March after disclosing a $1.8 billion loss on its own bond portfolio, triggering a run on deposits. Similarly, big banks’ huge unrealized losses are also sparking concern among Wall Street doom-mongers.
“‘Higher for longer’ is absurd baloney,” the market vet Larry McDonald said in a post on X Sunday, referring to the Fed signaling it would hold interest rates at about their current level well into 2024 in a bid to kill off inflation. “A 6% + Fed funds and Bank of America is near insolvency.”
It’s important to remember that BofA’s $130 billion losses are still unrealized. Unlike SVB, it isn’t officially in the red yet because it has not sold its bond holdings.
The bank’s chief financial officer, Alastair Borthwick, shrugged off the market’s worries on last month’s earnings call, pointing out that most of the bank’s fixed-income portfolio was low-risk government bonds it planned to hold until the debt expires.
“All of these are unrealized losses are on government-guaranteed securities,” he told reporters. “Because we’re holding them to maturity, we will anticipate that we’ll have zero losses over time.”
There’s still a possibility that spooked BofA customers will pull their money en masse, as they did with SVB — but that hasn’t happened. In fact, deposits are up after registering about 200,000 new accounts in the third quarter.
Some analysts also believe the worst of the Treasury-market rout is now over, with the Federal Reserve starting to signal that its tightening campaign is nearly done. Ten-year yields have softened in recent weeks, falling from 5% to 4.6% as of Tuesday.
That doesn’t mean the Big Four banks can afford to just dismiss the bond rout.
In a paper published earlier this year, researchers for the Kansas City Fed concluded that paper losses could still drag down a bank’s share price: “Unrealized losses can increase equity costs as investors’ perceptions of financial health deteriorate.”
That’s been happening this year, with three of the big four banks’ stocks sliding. Predictably, Bank of America has been worst affected, with its stock down 24% over the past year and 14% year-to-date.
“Worries over unrealized losses on sovereign bond holdings are also weighing on the US lenders, to again reflect concerns over rising interest rates and whether the US Federal Reserve will ultimately tighten policy by too much for too long,” AJ Bell’s Russ Mould said in a note last week.
Unrealized losses may not be about to trigger another financial crisis — but as long as bank stocks are down, they’ll remain a concern for Wall Street’s biggest names.
Read the original article on Business Insider
First Citizens Bank headquarters in Raleigh, N.C. on Monday, March 27, 2023.
kmckeown@newsobserver.com
On March 27, Raleigh’s First Citizens Bank transformed its present and future by purchasing the remains of the failed Silicon Valley Bank. Overnight, it went from the 30th largest U.S. bank to the 16th, adding $56 billion in deposits and nearly doubling its loans.
The move surprised many in the finance world. Silicon Valley Bank was the go-to bank for early-stage tech startups before a bank run sparked its collapse on March 10.
“When you started one of these companies, you didn’t give another bank a second thought,” said Igor Jablokov, founder of the Raleigh AI management firm Pryon. “You just started working with SVB.”
In reputation and portfolio, First Citizens was the opposite. It was a family-run bank founded more than 120 years ago in Johnston County. While First Citizens would eventually move north to the burgeoning technology hub of Raleigh, it never focused on the type of venture banking done by the Bay Area-based SVB.
However, it did have a track record of buying distressed financial institutions. In that way, the acquisition made sense.
“I was excited because they’re a local bank,” said Jud Bowman, a serial entrepreneur in Durham who had an SVB account and loan for his startup Sift Media.
So, seven months later, how is Silicon Valley doing under First Citizens?
Answers arrived last week when First Citizens released its latest earnings.
In the five days following the sale, deposits in the SVB segment of First Citizens Bank fell $7 billion as clients moved money to larger banks that were perceived to be safer. By the end of April, deposits had fallen a total of $15.5 billion since First Citizens took over.
Since May 1, however, the deposit exodus has largely ceased. The SVB division of First Citizens finished September with roughly the same deposit level it had six months prior — $40 billion.
“From the data, it seems at least they’re not hemorrhaging (deposits),” said Qi Chen, an accounting professor at the Duke Fuqua School of Business.
First Citizens has put resources into reassuring startup founders that SVB is still a reliable banking option. It launched a nationwide “Yes, SVB” campaign and, despite laying off around 500 former SVB employees in May, First Citizens has retained several former SVB staffers in local markets.
The SVB managing director in the Carolinas remains Chris Stoecker, who is based in Raleigh. Stoecker has been with SVB since 2010 and previously worked at Square 1 Bank in Durham.
“I talk to Chris every few weeks,” Bowman said. “For SVB to survive and thrive under (First Citizens), they’ve got to hold on to that talent base.”
Like founders nationwide, Bowman felt the chaos of SVB’s demise this spring. Silicon Valley was itself the 16th largest bank in the country, with a reputation for helping technology startups stretch their venture funding. But as interest rates rose, some grew anxious about the company’s significant holdings of long-term bonds. This ignited a bank run, which prompted the federal government to assume control.
Bowman was unable to extricate Sift Media’s money before the Federal Deposit Insurance Corp. froze SVB accounts.
“Is this the end of the company?” he recalled thinking.
Under its business loan agreement, Sift Media was obligated to keep an account with SVB, he said. But Bowman is confident in SVB’s future regardless of this requirement.
“They understand they have to convince us,” he said. “I think they’re back.”
Bowman was further reassured a few weeks ago when he attended a dinner with First Citizens Bank President Peter Bristow, who married into the Holding family, which has led First Citizens since 1935. Bowman said he left the dinner feeling First Citizens would make a strong commitment to startups.
While Sift Media only banks with SVB, others in the Triangle who had exclusively banked with SVB now diversify their deposits.
“As a firm, we follow the same policies we suggested with our companies,” said Jason Caplain, general partner and cofounder of Bull City Venture Partners in Durham. “So we have a cash balance at SVB that’s now smaller in size and the rest we pushed off to another bank.”
Jablokov said SVB under First Citizens has been more “liberal” in permitting his startup, which has an SVB loan, to store some of its deposits at other banks as well.
“‘There’s no way any sort of (chief financial officer) in these startups is going to allow you to not have a backup (account),” he said. “So, we do have relationships with other banking providers now.”
Like Bowman, Caplain and Jablokov described the transition of SVB to First Citizens as seamless.
“For us, there’s been no change,” Caplain said. “Still the same account. Still the same software. Still the same people.”
Today, First Citizens is the 15th largest bank in the country with more than $200 billion in assets. Yet some Triangle entrepreneurs say they still prefer to keep funds with the handful of national banks more universally deemed to be “too big to fail.”
For example, the largest U.S. commercial bank, JPMorgan, has $3.4 trillion in assets. Charlotte-based Bank of America is second with $2.45 trillion.
“Since First Citizens purchased SVB, uncertainty has been largely diminished,” said Ben Scruggs, CEO of Altis Biosystems in Research Triangle Park. Still, he has decided to keep Altis’ primary accounts with bigger banks that he finds “understand small companies.”
Compared to deposits, SVB loan levels have more consistently declined since the acquisition.
The bank added $68 billion in loans with the sale but had around $57 billion as of Sept. 30, a 17% drop. This decrease slowed over the summer, and in its Oct. 26 earnings presentation, First Citizens said that about half of its recent loan slide was due to winding down SVB’s global banking unit.
Speaking to investors, First Citizens Bank CEO Frank Holding acknowledged that the current “private market investment landscape” continues to suppress fundraising activity, exits and deals.
Higher interest rates have caused the entire sector to be more cautious, said Chen of Duke University.
“The (loan) industry itself is in a quiet period,” he said. “Nobody wants loans, nobody’s getting loans. So, it’s not clear going forward whether those innovative small business startups, when they need money, will still come to SVB.”
First Citizens bought SVB’s deposits and loans in exchange for company stock worth up to $500 million. It’s a decision that appears to be paying off.
Since the acquisition, the share price of First Citizens has soared. On the year, the bank’s stock is up 79%. In contrast, the Dow Jones U.S. Banks Index is down 16%.
First Citizens beat analysts’ expectations last week, as the company ended September with around $146 billion in deposits. For comparison, the company had less than $88 billion in deposits the same time last year.
Holding told investors the SVB purchase has given his bank access to new U.S. markets it was “already targeting.” Legacy SVB has a strong presence in Northern California, while First Citizens’ California branches were clustered in the southern part of the state.
First Citizens seems to be hiring, too, at least locally. According to data provided to The News & Observer by the North Carolina Technology Association, First Citizens was the Triangle’s top hirer for tech jobs in September.
“First Citizens has experienced significant growth over the past couple of years,” company spokesperson Frank Smith said in an email. “As a result, we continue to assess our tech talent requirements and positions to ensure we are meeting the needs of our growing enterprise.”
This story was originally published November 2, 2023, 7:00 AM.
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The collapse of Silicon Valley Bank, First Republic Bank and Signature Bank has companies looking to technology providers to ensure they have the right payment strategies in place.
Companies are looking at “due diligence, redundancy, single points of failure,” and wondering whether they are set up with the correct providers globally, Ralph Dangelmaier, chief executive at global payment platform BlueSnap, tells Bank Automation News on this episode of “The Buzz” podcast. “These are the things now people have to look at when they’re setting up their payment networks around the world.”
The bank collapses also present an opportunity for payments innovation in areas of super apps, embedded banking and platform upgrades, Dangelmaier said. “I think we’re on a small pause; innovation is down a little bit because we’re in the middle of this sort of transition period — but it is going to spike back up.”
Listen as BlueSnap’s Dangelmaier discusses payments innovation, lessons learned from collapsed banks and the state of global payments rails today.
The following is a transcript generated by AI technology that has been lightly edited but still contains errors.
Whitney McDonald 1:08
Well, thanks so much for joining us. We’re definitely in a unique environment right now in the financial industry. I figured we could kick things off by talking about the recent collapses from SBB, first republic, Signature Bank and of course, the crypto environment as well wondering if you could kick us off with some lessons learned takeaways, just from your perspective on what’s been going on in the past several months.
Ralph Dangelmaier 1:35
Great. Well, I think there’s a lot of lessons learned here. I mean, boy, have we had a turbulent ride, right? I mean, COVID came, everything started booming, nobody could do anything wrong. And then whammo, everything hit. And I think the lessons learned are that you really can never put all your eggs in one basket. Right? So the people that didn’t have multiple bank accounts, that people that weren’t prepared for either higher interest rates, or were prepared for backups on their bank accounts. We had, I think a story that didn’t get told well is a lot of these banks were processing payments for people. So not just payroll, but actually payments. So we heard of 1000s of merchants that were down for the weekend processing payments. So really, it’s a redundancy story is one here that I think is the big lesson learned is where are you redundant? Where are your single points of failure if you have a problem? So that’s one big lesson. I think the other thing you mentioned, and I’ll just touch on it simply is you could not do a podcast or you could not do a story without someone bringing up crypto, crypto, crypto, crypto, it was everywhere. And I think some people understood it, some didn’t. And now we’ve seen crypto collapse. So we had this banking collapse and crypto classes the same times really, really think made people nervous. And I’ll throw a third thing in there as lesson learned, is this Buy now pay later was literally the hottest thing ever. And so you’re constantly like borrow money and spend everything you can to grow and get into crypto and do buy now pay later. And all of a sudden, all three of those sort of stuff came tumbling down and merchants were left hanging Wait a man, this was my strategy a year ago? And now what do I do? So I don’t think I’ve seen so many real hot trends, crash, or really take this deep dive in so rapidly in any period of time and payments. So due diligence, redundancy, single points of failure, am I setup with the correct providers globally? These are the things now people have to look at when they’re setting up their payment networks around the world.
Whitney McDonald 3:58
Now, speaking of payment networks and payment rails and where we stand today, maybe we could just talk through the current environment and what exists today. Before we talk about the good stuff, the innovation.
Ralph Dangelmaier 4:13
Yeah, so what we ended up talking to a lot of our customers about is, you know, they get confused. So if you think about it, there’s hundreds of companies, hundreds of territories or countries out there, they all have their own payment rail in their country, right. So they all have their own like Pay Pal in their own countries. And then you have these global networks. There’s about seven of them, right like China, UnionPay and Visa and MasterCard, American Express, and when do I use them? And then there’s bank transfers that happen like ACH or EFTPS in certain countries. And now there’s real time gross settlement which is happening, which is like fed now, and open banking sort of in another little Avenue Over in Europe, and this is confusing people. That’s really what the message here is they’re confusing. What rail do I use? For what customer type? In what country? In what currency? And what does it cost. And so I think what’s happened is we’ve taken something that was very simple. When you use sort of ACH for payroll, you do buy things online with a card, and the smartphone and the innovation and the worlds can, again, smaller is confused everyone, because now there’s literally hundreds of wallets around the world. And they got to work on hundreds of different connected devices. And you’re trying to work with hundreds of currencies, and people that are just confused. So I think trying to really map out payments, and what rails you’re going to use as part of your product plan when you roll things out. Like let’s catch people doing it right, like people like Uber, or maybe Intuit. That’s where I think the rail conversation really comes about. And usually if you’re selling outside of your own country, you have to educate yourself on what’s the right rails that aid process for those customers outside of the country. Whitney,
Whitney McDonald 6:12
if we can take that a step further, what are those conversations look like? How do you know that you are selecting the right payments? Well, especially with more coming to market fed now coming in July? How do you know you’re making that right? Choice? Yeah,
Ralph Dangelmaier 6:29
so it really comes down to is what it? Who’s your customer? I know it sounds simple, but it’s who’s a customer? Is it b2b is a b2c? Is it a mix? How does that customer now what’s the way it likes to pay? So there’s a payment method called ideal, which does about 70% of all online transactions. In the Netherlands, right? So that’s how people want to buy as a consumer. Bigger business may want to pay with a bank transfer, or something called SEPA over in Europe, right? Very similar United States, right? Where we pay with small transactions use in cards and big transactions, we’ll probably use an ACH or wire, that wire now might move to a Fed now. So you really need to look at who’s my customer base? Where are they located? What’s their preferred currency? What’s the preferred payment method? What’s the dollar amount? Because if it’s $100,000 payment, you’re probably not going to put that on a credit card. But if it’s a $10 payment, you most likely are? And what’s the work involved in the back office on collecting payments? And how much work it is? So there’s a little analysis that has to be done by the company to figure out what does make the most sense based on who my customers are? And that’s really the question that I know we spent a lot of time to is who’s your customers BBB Z both is an invoice, you know, they buy online, and that’s helped figure out what then is the most optimal payment method that you need to offer on your checkout to really cater to those customers.
Whitney McDonald 8:07
So one of the things that comes up is that that confusion that you’re hearing from customers, there’s friction in this process, maybe we can shift into some innovation talk here where there is opportunity for innovation in payments, and the importance of innovating within this space.
Ralph Dangelmaier 8:26
So there’s been so much innovation in payments in the last 15 years is one of the I think it’s a second most invested space by private equity firms in the world after biotech. We’ve seen all of it come with the invention of lots of cool things right? Apple Pay By now pay later crypto, all the things we mentioned. So are we going to stop innovating? No, I think we’re on a small pause innovations down a little bit because we’re in the middle of this sort of transition period. But it’s going to spike back up. And where’s innovation going to spike? At least from our point of view? Well, I think absolutely real time payments and open banking those concepts. cutting out the middleman is absolutely going to be a spike. I think you’re going to see this concept of super apps, right? Where Why am I going to log into so many different apps? Why do I have so many of a wallets on my phone to check out? And it really, you know, it looks like, you know, just a confusing menu. I mean, I was buying something the other day from a well known retailer and they must have had it looked like a NASCAR racetrack there was so many stickers on there. I’m like, which one do I pick to choose to buy? So it’s making things so we’re going to see that consolidate in my opinion, you’re gonna see so many wallets. I think the other thing you’re going to see is the concept of pain more in what I call ubiquitous or common currency is going to change right and right in the changing things back and forth. So think of like a common Euro that we’re going to see around the whole world, we’re all using a single currency, sort of what Bitcoin is trying to do, I think you’re gonna see innovations in FX. And the other one that I think is kind of one of my favorites is, you’re going to see platforms, which really run companies, if you think about it, right, the likes of whether it’s Salesforce or HubSpot, or Intuit, or SAP, or Salesforce, they’re really running, they’re the heart of what runs these companies, right in this specialized ERP and CRM systems per industry, they’re going to start offering banking services, you’re going to be able to open your bank account as a law firm, or accounting firm or school or camp, you’re gonna be able to open your bank account on your platform, and you’re gonna be able to form payments, and you’re gonna get lending there, it’s already started to happen, we’ve seen about, we’ve done a survey ourselves. And we’ve seen a lot of outside data that says about 10% of the platforms today are serving up and opening bank accounts. And the trend is being called embedded banking or embedded payments. And you’re gonna hear a lot about that over the next 10 years that this business is gonna go from very little to potentially a trillion dollar business in the next years. And that’s one of my favorites, because I think it makes it easy. It’s frictionless for the merchant. And when they’re filling out their application to sign up for Intuit, or Salesforce, they’re also opening the bank accounts and to do something different. And they don’t have to go do this coding integration, hire system integrators to do it, which we have a huge problem in the world with technical debt, right? Everything requires technical resources, and we just don’t have enough of it. So I think that’s ripe for disruption and innovation right now and where we are in the market.
Whitney McDonald 11:45
Now, with all of those examples in place, and different opportunities within the payments industry, what are you looking forward to or expecting from the payments world? Whether it’s innovation or reimagining money movement? What are you looking forward to or watching for even working on?
Ralph Dangelmaier 12:03
Yeah, well, I’m gonna follow up on my past theme, I’m really looking forward to watching these, these platforms starting to sell on open bank accounts and how powerful they become. And I think it’s going to be a big shift in banking, I’m going to think the SMB business is not going to go to the bank anymore. And I think you’re gonna see lots of bank closures, I think you’re gonna see a lot less use of cash. You know, cash is still rising every year. And the people don’t believe that, but they really are. Because, globally, cash is on the rise, especially as we get into tough economic times. So I’m looking forward to see that. And I think as soon as, as we come as recession, we’re gonna see explosion of investment and innovation on those topics I mentioned earlier. It will really I don’t know when it’s gonna exactly happen. But my guess is every time we’ve been through one of these things, when it was 1999 2000, we had a we had a sort of a low in the internet, and then boom, exploded. We saw another low in Oh, 708 the smartphone came along and exploded. We saw COVID Law things and we came out things exploded. I think we’re gonna see a real mass investment and explosion of innovation. Probably 2425 is what I see happen. And it’s just fun watching these companies, you know, kind of start and bloom into something very interesting.
Whitney McDonald 13:26
You’ve been listening to the buzz, a bank automation news podcast, please follow us on LinkedIn. And as a reminder, you can rate this podcast on your platform of choice. Thank you for your time, and be sure to visit us at Bank automation news.com For more automation news,
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Live Oak Bank in Wilmington, NC is the fourth largest state-chartered bank in North Carolina and a national leader for funding small businesses.
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In March, following the collapse of Silicon Valley Bank and Signature Bank, clients moved billions of dollars out of smaller U.S. banks and into money markets and the handful of giant banks deemed to be “too big to fail.”
For Live Oak Bank, a regional bank based in Wilmington, this meant an exodus of deposits.
In the two weeks after a bank run toppled Silicon Valley Bank, Live Oak customers removed around $250 million in uninsured deposits, the company noted during its latest earnings report. This outflow wiped away the more than 6% growth in deposits the bank had seen over the first two months of the year.
But retreating 2023 gains weren’t the Wilmington bank’s primary concern. Its executives were determined to shield their institution from a burgeoning U.S. banking crisis.
“It was a frightening time,” said Live Oak President Huntley Garriott. “There were a lot of unknowns, and contagion is a scary thing.”
With around $10 billion in assets, Live Oak straddles the line between a community bank and a regional bank. It’s the fourth-largest state-chartered bank in North Carolina and leads the nation in providing a specific type of small business loan: According to the U.S. Small Business Administration, Live Oak has approved more SBA-sponsored loans, in terms of total dollars, than any other bank in each of the past six years.
Garriott said community and regional banks like Live Oak often make loans that wouldn’t qualify under the blanket tests used by the largest banks.
“We will go through a lot of work in our underwriting to understand the story, to get to know the borrower, to make sure they’re the right person to take on,” he said. “Small businesses, by nature, have more volatility, so you’ve got to be able to work with them and be along for that journey.”
Even before the current industry upheaval, small and midsize banks have been disappearing in North Carolina, mirroring nationwide sector consolidation. According to the North Carolina Commissioner of Banks, there were 87 state-chartered banks in April 2003, 71 in April 2013, and only 35 last month.
“You’ve seen deposits declining in the smaller bank sector,” said Gerald Cohen, chief economist at the Kenan Institute of Private Enterprise, a think tank affiliated with the UNC Kenan-Flagler Business School. “And that is deleterious to commercial and industrial loan activity.”
Live Oak is branchless, serving clients only online. Its workforce includes around 650 people in Wilmington and another two dozen in both Raleigh and Charlotte. In the Triangle, it has an office on North Carolina State University’s Centennial Campus and a small coworking space at American Underground in downtown Durham.
Founded in 2008 by banking entrepreneur Chip Mahan, Live Oak has grown by focusing on specific industries: first loans to veterinarians, then expanding to other recession-resistant businesses like funeral homes and dentists. Four years ago, Live Oak opened a division serving early-stage startups, a mini-version of Silicon Valley Bank.
But since March, the last thing Live Oak has wanted to be is the next SVB.
Located about 15 minutes from the beach, Live Oak’s headquarters was a hive of activity the weekend after SVB’s demise.
Garriott described it as “war gaming.”
“The first thing that we did, that I think everyone did, was really access our balance sheet, our liquidity, and start to run scenarios of what could happen,” he said. “You have to do that really fast and have a really good team around you. Where are there available sources of financing and liquidity? We spent the better part of the weekend doing all of that. Talking to our board. Talking to regulators.”
In late March, Live Oak raised its interest rates on deposits .5% in an attempt to attract new deposits.
As deposits dropped and concerns over systematic bank runs mounted, Live Oak executives also weighed their communication strategy. Should the bank broadcast its underlying financial strength with press releases to assure customers, a step taken by some of its competitors? Or would doing so only raise alarms?
“We, at the end of the day, stayed relatively quiet,” Garriott said. “Our customers are largely insured, and we have a lot of capital. We didn’t see the stress, and so we didn’t need to put out the types of releases that others were trying to stop a crisis of confidence. But we were prepared to do so.”
Compared to the overall U.S. banking industry, Live Oak had a low percentage of uninsured deposits, a key metric many have used in recent months to assess institutional stability. The Federal Deposit Insurance Corporation (FDIC) guarantees up to $250,000 in each account, and any higher amounts are uninsured.
For the first quarter of 2023, 85% of Live Oak deposits were insured, compared to the sector average of 56%. For context, only 10% of SVB deposits were insured at the end of last year.
“My initial reading tells me Live Oak does not have any of the features which triggered a run on SVB,” said Rahul Vashishtha, a professor of accounting at the Duke University Fuqua School of Business who reviewed the bank’s first-quarter earnings report for The News & Observer.
Vashishtha highlighted Live Oak’s “minimal reliance on uninsured depositors” as well as its little unrealized losses on its loan portfolio.
In its earnings report, released on April 27, Live Oak reported having $4.2 billion in cash and immediate borrowing capacity, enough to cover three times its uninsured deposits.
Live Oak actually finished 2023’s first quarter with higher total customer deposits, up 2.7% — a reversal Vashishtha called “astounding.”
While it hemorrhaged uninsured deposits, Live Oak continued adding new accounts in the weeks after the crisis began. Around March 23, its balances began to bounce back. Elevated savings rates may have drawn in new accounts while business owners like Alex Lassiter, the CEO and founder of the startup Green Places in Raleigh, came to Live Oak after fleeing SVB.
“They’ve been great to work with and good partners,” Lassiter said.
Over the past two months, the branchless Wilmington bank has bucked an industry trend among small U.S. commercial banks, which overall have not seen their post-SVB deposits return, according to data from the Federal Reserve.
But Live Oak wasn’t the only North Carolina bank to end the volatile first quarter with deposits up. First Bank, a commercial bank in Southern Pines, saw its balance rise 3.7%. Asheville’s HomeTrust Bank and Catawba County’s Peoples Bank each reported even deposit change between Jan. 1 and March 31.
“I’m surprised at that,” Cohen at the Kenan Institute said of the absence of deposit losses. “Because the (sectorwide) data I’m looking at is suggesting otherwise.”
But even as deposits surpassed pre-crisis levels, the value of community and regional banks on the stock market have sunk since Silicon Valley Bank’s downfall.
For the year, Live Oak stock is down 25%. Peoples Bank is down 46%, First Bank down 24%, and HomeTrust down 11%.
Since Jan. 1, the share price of PacWest, a California-based business bank that many speculate is operating on shaky ground, has plummeted 66%. Conversely, banks considered “too big to fail,” have seen modest stock declines (like Wells Fargo) or even increases (like Chase).
“What you want is the market to be a reflection of the performance of the business,” Garriott said. “Not the market to actually drive the performance of the business. When you’re in that position, it’s difficult.”
U.S. banking concerns are certainly not over.
On May 1, First Republic Bank became the third major U.S. bank to fall this year after a bank run. Many believe the question is when, not if, additional banks will fail.
At Live Oak, Garriott said the feeling is “cautiously optimistic.”
“I don’t think anybody is declaring victory,” he said. “But if you didn’t look at the news, and you didn’t look at our stock price, with the exception of the outflows of uninsured deposits for the two weeks at the end of March, you wouldn’t actually know anything happened.”
This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work.
This story was originally published May 25, 2023, 7:00 AM.
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