Silicon Valley Bank crisis: Investor Bill Ackman bats for 'highly dilutive' bailout of bank

Amid growing concerns about Silicon Valley Bank's financial stability, US billionaire investor Bill Ackman said that the US government should consider a "highly dilutive" bailout for the lender.

Founder and CEO of hedge fund Pershing Square Capital Management, Ackman said that the "failure of SVB could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash".



"If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered," he said in a series of tweets.

Ackman said that the US government can also guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections. "If @SVB_Financial is indeed solvent, this would buy time to enable SVB to restore the franchise and raise new private capital," he wrote.

Ackman went on to add that a bailout should be designed to protect the lender's "depositors, not equity holders or management".


Also read | Is Silicon Valley Bank’s swoon a recession signal?

"We should not reward poor risk management or protect shareholders from risks they knowingly assumed," he added.


Silicon Valley Bank’s shares posted their biggest loss since the bank's 1988 IPO after its surprise announcement that it would take extraordinary and immediate steps to shore up its finances.

The bank disclosed that it had sold off $21 billion of its most liquid, or easily tradable, investments; borrowed $15 billion; and organized an emergency sale of its stock to raise cash, media reports said.

SVB’s stock price nosedived 60% on Thursday as investors rushed to sell shares after the announcement.

SVB's customers' "cash burn" rose in February and is driving deposits lower than forecast, CEO Greg Becker said in a letter to investors. Combined with higher costs of capital, that is pressuring margins and income, he added.

According to Bloomberg News, SVB does business with almost half of all US venture capital-backed startups, and 44% of US venture-backed technology and healthcare companies that went public last year.

SVB also published updated outlook estimates, and forecasts a "mid thirties" percentage drop in net interest income this year - larger than the "high teens" drop it forecast seven weeks earlier.