Navigating the Aftermath: The Status of Buyside Recruitment in the Wake of Silicon Valley Bank's Meltdown

Silicon Valley Bank (SVB) was recently shut down by regulators who seized its deposits, making it the biggest banking failure in the United States since the financial crisis of 2008 and the second-largest failure in history. Like other banks, SVB invested heavily in US government bonds when interest rates were near zero. But when the Federal Reserve aggressively hiked interest rates to combat inflation, bond prices dropped, eroding the value of SVB's bond portfolio. The bank's portfolio was yielding close to 2%, far below the 10-year Treasury yield of 3.9%. Moody's Investor Service, a credit rating agency, raised a red flag when it analyzed SVB's fourth-quarter results in early 2023, citing a significant amount of unrealized losses that made the bank vulnerable to a downgrade. In an attempt to improve liquidity on its already distressed balance sheet, SVB endeavored to offload $2 billion of its investments at a loss. The result was a dramatic market response that caused SVB to plummet in value by over $160 billion within 24 hours.

As the stock of SVB declined, hedge funds and venture investors grew concerned about the bank's financial stability. Consequently, they quickly withdrew their funds, leading to a liquidity crisis. Once news of these withdrawals became public, fear of loss spread, and creditors across the globe began requesting the return of their invested or stored capital from banks heavily invested in corporate and government bonds. Social media further amplified this issue, with hundreds of thousands of Twitter users discussing the matter. Creditors, ranging from small investors to large institutions, were worried about potential losses and thus sought to withdraw their investments from such banks. In order to ensure depositors could access their funds by the following week and to prevent potential threats to the financial system, the FDIC stepped in. This all being said, the sudden collapse, according to Bloomberg Intelligence, could still result in a significant reduction of venture capital portfolios, with markdowns of 25-30%, potentially leading to a loss of approximately $500 billion for the $2 trillion venture capital industry. 

The government's willingness to take drastic measures to prevent the collapse of large banks and protect them from the risks associated with higher interest rates and inflation is undeniable. However, it remains uncertain whether smaller commercial banks, outside the top twenty to twenty-five, will receive the same level of protection. The recent record drop in deposits at small US banks following the SVB collapse, as reported by Reuters, suggests that the consequences of federal intervention, regardless of its inevitability, are becoming increasingly apparent. Moreover, there is speculation that the feds may be willing to lend against securities at book value, enabling banks to label any bond as "HTM" without risk. This would allow banks to hypothetically buy 4% yields today and potentially receive a loan from the federal government at 2% interest to cover liquidity concerns and still make a profit. While such a solution may keep the system running, it could exacerbate the underlying infection as later seen with the acquisition of Credit Suisse by UBS. 

Why does this matter for buyside recruiting specifically?
For those interested in pursuing a career on the buyside, the current state of the investment banking industry has significant implications. Various factors, such as the UBS/CS acquisition, the fallout from SVB and Signature Bank, bank layoffs, and potential industry headwinds to raising future capital, are currently affecting buyside recruiting. This uncertainty may lead to questions for first-year Investment Banking Analysts about how it will impact their aspirations to move into a buyside seat.

One particular concern is the UBS/CS acquisition and how it may affect the need for a 2023 summer internship class at Credit Suisse, which is a direct pipeline to full-time analyst positions at the bank and onto Associate positions on the buyside. With the uncertainty of whether UBS will keep the CS IB division and what it will look like moving forward, both future interns and first-year analysts who have already accepted a highly coveted Associate position for summer 2024 may face challenges with their timeline and commitments. It is therefore unsurprising that there has been a noticeable increase in the number of Credit Suisse employees looking to recruit for a more immediate start.

Furthermore, the influx of SVB candidates picking their head up and bank layoffs across the street have resulted in more investment bankers looking for lateral sell-side and buy-side positions, causing the candidates' market to become more saturated and competitive than in recent years. As we stay close to the recruiting market over the coming weeks it will be interesting to see if there are fewer firms hiring and yet more qualified candidates recruiting for those few coveted spots. It is critical to stay up-to-date with the changing landscape of the investment banking industry to succeed in buyside recruiting. Adapting and being flexible in your approach to securing a role in the industry is crucial given the level of uncertainty in the market.

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