Why Silicon Valley Bank disaster is a buying opportunity for investors

Tell clients how this crisis differs from 2008 and what they can gain from it, says PM

Why Silicon Valley Bank disaster is a buying opportunity for investors

The loudest voice is not always the smartest, one portfolio manager has warned after the collapse of Silicon Valley Bank sent social media influencers into a frenzy. The US banking crisis, like other market meltdowns, has emphasised once again how important communication is between advisors and their clients but also highlighted the industry's inability to penetrate popular platforms.

“Influencers’ goals are to add more eyeballs to their posts, so they’ll grab headlines and start talking about things like bank failures as if they’re experts and they know what they’re talking about, but they don’t," Grant White, a portfolio manager with Endeavour Wealth management with iA Private Wealth and managing partner of Endeavour in Winnipeg, said. "They’re not professionals, even though hundreds of thousands of people might be listening to them."

“As an industry as a whole, we’re not using the platforms that people are using, so we’re not even communicating in the way that people want to be communicated with, and we’re not getting those professional messages out to people. So, with an absence of that, people are going to rely on what they have available to them – which, unfortunately, right now is improper advice in most cases.”

White was reacting to the collapse of Silicon Valley Bank (SVB) and two other American banks last week. The news sent shockwaves through global markets, prompting a worldwide sell-off of bank stocks and some of the biggest rallies in government bond prices since the great financial crisis of 2008. The U.S. Treasury Department and Federal Deposit Insurance Corporation quickly stepped in to ensure depositors kept their money, but many are still analysing the results of the fallout, with Credit Suisse the latest bank on life-support.

White, who has talked to some clients to alleviate their concerns this week, said bank failures are more common in the U.S. than Canada. However, SVB's collapse was the result of a perfect storm since it was overexposed to the technology companies, which were more reliant on their cash reserves – just as the rapidly increasing interest rates were hurting SVB’s treasury-bills.

He said that, while the U.S. authorities reacted very quickly to allay concerns, he questioned whether the Federal Reserve should now be altering its course of increasing interest rates.

“It seems counterintuitive if you’re bailing out banks, and then also continuing to raise rates, which could force more bank failures,” warned White.

Even though the headlines are reminiscent of 2008, he added that Canadian banks’ reserves are much healthier and any short-term fluctuations in share prices could present an investment opportunity. He thought even the Wall Street banks may scoop up some assets now on sale.

“The Canadian banks didn’t drop nearly as much, so I’d be keeping an eye on them,” said White, noting that Endeavour is looking at those through its managed funds. “Anytime you can scoop up Canadian bank shares when they’ve dropped in a short-term volatility, that’s an easy one to do.”

White noted that Endeavour has been ensuring that it communicates with its clients – both those calling in and those receiving its communications. It’s assuring them that there are several key differences from 2008 - the biggest being the size of SVB, which was relatively small at $200 billion. While it was remarkable because it was the second largest bank failure in the U.S., it’s pales in comparison to the Wall Street banks, which manage trillions of dollars.

 “At this point, we don’t have any concerns about this spreading to the Wall Street banks in any meaningful way,” said White. “So, the number one thing is that people need to be patient and not overreact. Try to scoop up the opportunities when you can, and you’ll be successful if you do that.”