Before Silicon Valley Bank failed on Friday, March 10, in what some call the first Twitter-fueled bank run, onlookers were already talking about SVB Chief Executive Greg Becker’s call to stakeholders to “stay calm” the day before.
I was one of them and tweeted hours before the failure that friends don’t let friends say, “We have ample liquidity to support our clients, with one exception …” (The quote continued, “If everyone is telling each other SVB is in trouble, that would be a challenge.”)
Not long after the failure, finger-pointing and second-guessing were already underway, including a lawsuit alleging SVB executives misled investors. Volumes will be written on the unrealized investment portfolio losses at the bank, the policies that may have contributed to the risk, and the appropriateness of regulators’ actions.
But poor communication also played a part in the collapse of this $209 billion-asset bank and deserves a closer look.
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How SVB’s Communications Effort Failed to Connect
During the week prior to SVB’s failure, its management team was dealing with a set of circumstances that many banks have dealt with before: the threat of a credit ratings downgrade, the need to raise additional capital and liquidity, and a balance sheet heavy with unrealized losses. (See the announcement of its capital raising plan and its investor update issued on Wednesday, March 8.)
Management’s plan was twofold. First, it would sell “substantially all” of its available-for-sale securities portfolio at a $1.8 billion after-tax loss. Second, the bank would shore up its balance sheet by raising “approximately $2.25 billion between common equity and mandatory convertible preferred shares.” Planned execution of that strategy followed the standard playbook for investor communications — a mandatory regulatory filing, a news release, a letter to stakeholders, a presentation, and a conference call. Nothing too extraordinary.
But SVB never made it to raising the $2.25 billion in fresh capital. Following the Wednesday afternoon announcement, Peter Thiel’s Founders Fund and others began advising clients to move their money as the bank’s stock plummeted by 42% before 1 p.m. and 60% overall on Thursday. By the end of day, depositors had withdrawn nearly $42 billion and the bank had a negative cash balance of $958 million.
SVB CEO Becker attempted to slow the run with a Zoom call in which he urged stakeholders not to panic. But the holding company lost another 25% in extended trading and its stock never opened for trading on Friday, having been halted before the California bank regulator closed the bank that morning (Pacific Time).
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What Went Wrong with Silicon Valley Bank’s Communication
Investor communication is a profession and discipline. While Silicon Valley Bank does not appear to have violated any of the standards of practice associated with its announcement, its execution left much to be desired.
This started with the news release. Nowhere in the 496-word body of the release — 70 of which were in the lede alone — did the bank explain why it was offering more than a billion in common stock or what it was trying to accomplish by selling approximately $21 billion in securities at a loss.
Inquiring minds understandably would need more information and found it in the bank’s presentation and letter to stakeholders explaining its actions and intended effects. (For a closer look at the selected pages from the presentation shown below, just click on the individual panel.)
In those documents, one can begin to see the bank’s strategy, but if the news release suffered from brevity and technical gibberish, the presentation and letter smothered readers with density, the presentation including more than 30 slides and hundreds of stats and figures.
Still, that was not enough.
The message was lost in noise — and competition with other voices in real time fanning the fires.
How Not to Put Out a Fire:
Instead of water, SVB CEO Becker reached for gasoline by conducting a conference call which even he called 'strange,' according to media accounts. During his call, he urged listeners to 'just stay calm, because that's what's important.'
What Becker said that inspired the largest number of social media posts, including mine, was his widely reported statement that the bank had “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble, that would be a challenge.”
Further, Becker appeared to overestimate the good will he believed customers owed the bank when he said that the bank had been a “longtime supporter of you, the venture capital community companies, and so the last thing we need you to do is panic.” He did not take questions.
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4 Key Takeaways for Bank Communicators
My read on this conference call and the situation at that stage: I have advised many chief executives during high-wire act moments. I can only imagine that the remarks on the call were unscripted and intended to provide candor and personal identification with the audience and broader community. While the written materials appear overwrought but carefully crafted, the talking points during the call demonstrate little command for the situation. That was a miscalculation as the bank appears to have misunderstood important traits about its audience and the speed in which communication works today.
It is also possible that by that point it was already too late, as regulators were on the scene.
Diagnosing communications in the tech and venture capital community: Nearly all executives in the technology community are on Twitter. They monitor all the other social media and communication platforms as well. They are married to their cell phones and receive constant alerts, and if they don’t have an app to manage their investments, their advisors are on speed dial. News and rumors travel fast in that environment — along with the inaccurate warts and incomplete wrinkles.
The big problem: While the social media sphere was lighting up about SVB, that was when the bank seemed most silent and unengaged in the conversation occurring about them. That may only be appearance as the SVB bankers were working the phones vigorously. But appearance is critical.
There’s another wrinkle specific to the community in which SVB operated: That world is comprised of innovators, movers and shakers. They are not risk averse and are comfortable making decisions quickly with the best available, if incomplete, information. While they may be socially aware and civically engaged, when it comes to their money and their companies, it is all business. As banking services become more commoditized, notions of loyalty become quaint. In that environment money moves fast, too, and that speed is accelerating.
All of which makes handling announcements and corporate communication more important and challenging, not less.
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How Banks Can Avoid the Communications Problems SVB Faced
Effective communication starts at the top and requires the chief executive to have quality, trustworthy communication counsel. The individual or team providing that counsel needs a seat at the table. Their voices need to be respected and heard.
The communication counsel needs courage and must earn their seat. He or she is likely to be the lowest-paid individual in the room, yet is responsible for as much risk to the company’s success as every other executive.
Asking tough questions and giving unpopular advice goes with the territory. Successfully delivering the advice in the heat of battle requires building a store of credibility during peacetime, established over time by knowing the business nearly as well as the chief executive, and speaking the language of the chief financial officer as well as the general counsel.
More importantly, the best professional communicators must be capable of translating everything into plain language in a compelling and truthful manner. In my experience, stars in this field are rare and special talents.
Sometimes, a communicator must ask why the organization is saying anything at all. Sometimes the communicator must tell the CEO now is not the best time.
Communicators Need Backbones:
Great communicators provide credible challenge to the business decisions that leaders make because asking tough questions in the boardroom means the executive will have the right answer when the lights are brightest.
I hope the SVB team had such frank discussions about a lot of things leading up to its failure. This includes whether just dealing with the impact of a credit ratings downgrade would be easier and less risky than managing the fallout of announcing a major balance sheet overhaul in the current environment.
I have no reason to think that the communication environment and advice provided at SVB were anything but stellar. But the outcomes were not.
The sad truth is that perfect communication cannot overcome material facts in many cases. Even in the best environment and with the best advice, positive outcomes are not guaranteed. However, their likelihood increases when communication is given the same priority and treated with the same seriousness as other executive and corporate responsibilities.
About the Author:
Bryan Hubbard is a consultant focused on banking and financial services risk and reputation. He has provided outcome-focused strategic communication counsel to federal agency heads and chief executives for more than 30 years. He served under nine heads of the Office of the Comptroller of the Currency for more than 15 years. This included serving as OCC’s Deputy Comptroller for Public Affairs, where he headed the agency’s communication and external relations functions.