We have read tons of analyses of why Silicon Valley Bank Collapsed. We also have read accusations of running high and dry out of loss of market capitalization of Adani Group. The analysis of the former is more technical in nature blaming systemic issues faced by banks due to their exposure to the Interest rates and effects of liquidity. And this analysis is correct. No one blames US Government to be hand in gloves with the bank operators neither the US banking system is blamed apart from a few procedural issues. While on the other hand, there is a political slugfest to discredit Indian Institutions which have delivered profits and stability for their millions of users. India is branded as the most crony capitalist country on the planet by some private investigators operating on the Internet who work for profits: rightfully so and within the ecosystem of investors and markets and also rightfully praised for their acumen by experts. I am not absolving anybody nor accusing anyone but the basic assumption (in most of the analysis and reporting) that India operates as a third-world, power-driven ecosystem seems a bit agenda-driven and filled with inherent bias.
Most of the analysts agree on the following: SVB a bank that catered to the tech industry was the biggest US lender to fail since the 2008 global financial crisis—and was the second-biggest to fail ever. Analysts say SVB was largely unprepared for the Federal Reserve’s aggressive interest rate increases, which shrank the value of its investments. As word spread quickly online that the bank could be in trouble last week, customers withdrew $42 billion in a single day, leaving the bank with a $1 billion negative balance, according to a regulatory filing by the company. While financial regulators have announced that the US will guarantee all deposits at SVB, its collapse has spooked customers at other banks and raised concerns about other financial institutions. Many observers postulate that the vulnerability was hiding in plain sight, a result of a combination of COVID government stimulus followed by a series of rates hikes. I would add other contributors: general uncertainty exhaustion after several years of dealing with surprises ranging from shortages and runs on basic goods to the Fed’s limited ability to control or even forecast inflation. Something will also have to be said eventually about the profitable business of inciting runs that some hedge funds have been up to. While all of these factors likely played a role, this narrative oversimplifies a few points and plays into the panic. We actually do not know much about SVB’s exposures, since they fell below the Fed’s threshold for the annual collection of Form FR Y-14A Capital Assessments and Stress Testing. At the moment, we also cannot track what fraction of SVB’s deposits was connected to the local venture capital (VC) ecosystem that it was serving. But we do know that this bank was different, and it is highlighted in its name and in the history of its public statement.
It is very clear that there is no other bank with over half of its loan portfolio dedicated to private equity subscription lines—that is, lines secured by VC and private equity fund commitments but ones used to fund investments in the short- to mid-term in lieu of capital call. To add to that, the SVB leadership’s unorthodox approach to the management of liquidity pressures clearly backfired. The triggers of the run on SVB were no more apparent than the runs we have seen in the crypto space. The bank run was devastating for SVB, but the real problems that triggered this event were the underlying interest rate exposure and the slow withdrawal of deposits. SVB was forced to issue a large amount of equity, which brought a lot of attention to their situation. There is now a lot of attention on the situation at all banks. The underlying interest rate exposure is common across banks, so some drop in bank equity values is appropriate. So other banks might also face problems.
Now let’s compare the analysis of the debacle of the Adani Group as depicted in the International Media. Since the Jan. 24 Hindenburg report which alleged improper use by the Adani Group of offshore tax havens and stock manipulation and also raised concerns about high debt, the market capitalization of seven listed Adani Group companies has fallen by half or nearly $100 billion. Its dollar bonds have tumbled. To be sure, analysts say, the shock to the system comes because of Adani's heft and influence, rather than exposure. His conglomerate spans ports, coal mines, food businesses, airports, and lately media, and before the rout, its seven companies had accounted for more than 6% of the National Stock Exchange market value. While the Adani Group has total gross debt of 2.2 trillion rupees ($26.86 billion), top banks have said their credit exposures to the group are small. Shares of the firm are closely held, and mutual funds have low exposure too. Investment research firm TS Lombard said the Adani allegations had "hastened the decline we expected in Indian equities as foreign investors rebalance their portfolios on China’s reopening" but that the declines would be limited for several reasons, including Adani being “too unique to fail”.
The aspersions and surmises about the stability of Indian Institutions have been running wild. Indian opposition parties, anti-incumbent intelligentsia, and vested interests in the domestic and international media have joined the bandwagon. I am not saying that there were not any irregularities in the Adani case. Thankfully Indian systems are robust to weather the debacle of one such entrepreneur group. The banks and institutions exposed to the investments in this group are doing well and have performed as per expectations. The same short-selling research group which had published Adani's report had no insight on SVB failure though they might argue that that’s not their business interest. Both failures are independent market-driven business events but are viewed differently based on inherent biases.
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