Case Study: Silicon Valley Bank -- botched communication fuels the second-biggest bank failure in history
Silicon Valley Bank collapsed in March 2023 after a run on deposits doomed its plans to raise fresh capital. Weak communication was a primary factor in the crisis, on two dimensions:
- Failure of communication strategy. SVB underestimated how sensitive depositors would be to the news, in the context of recent financial failures.
- Failure of storytelling. SVB communicated without context and neglected to build a narrative.
SVB was a $200 billion institution and had been the go-to-bank for tech boom startups. They took cash deposits and invested them in securities including U.S. government bonds, a strategy that racked up large losses when interest rates rose. SVB had to sell its investments at a $1.8bln loss and decided to raise $2bln in fresh capital to cover the losses.
Objectively speaking this situation and SVB’s action to resolve it should not have been particularly worrying. However, the way the bank communicated the news on 8 March 2023 caused panic and contributed to a viral rumour that the bank was about to collapse. The rumour became a self-fulfilling prophesy as fear spread through tech group chats. Influential analysts advised depositors to pull out their funds. Within hours, customers had withdrawn $42 billion in deposits and SVB was finished.
“The bank was in sound financial condition on Wednesday. A day later, it was insolvent.” - Wall Street Journal.
What went wrong?
- Bad timing – SVB announced the news against the background of several high-profile banking and FinTech failures and on the same day that Silvergate — the largest crypto bank — declared it was liquidating. With stakeholders primed to panic, SVB should have communicated much more carefully and strategically.
- News release – SVB’s statement has been cited as among the worst ever written: jargon-filled and technical, without any attempt at context or reassurance.
- Zoom call – CEO Greg Becker appeared on a Zoom call to explain the announcement but used language that fuelled concerns rather than giving reassurance (“stay calm”, “the last thing we need you to do is panic.”) One analyst commented: “These are the very things you don’t want to hear from a bank CEO.”
- Channels – SVB chose to make a simple announcement without enough coordinated communication around it. They did not use interactive communication or background briefings to shape how it would be received. They did not enlist third-party allies or advocates to cultivate understanding. They effectively ignored the media.
- Audience – SVB’s statement targeted in its language only one audience – financial underwriters. It was too technical and convoluted for its implications to be understood by two crucial stakeholder groups: the bank’s own customers, who panicked, and the media, who had no context on which to craft a balanced narrative.
- Delay – After the announcement SVB went silent and waited almost 23 hours to resume communication, by which time the damage was done. They did nothing during that time to fix the false narrative that SVB was an irredeemably failing bank.
This crisis was a failure of storytelling: SVB presented no story. Facts without context and explanation are dangerous because every communication ecosystem gravitates towards narratives. If no narrative is presented, one will emerge automatically. The collapse of SVB is a cautionary tale that false narratives have a shocking power to become the truth.
A truthful and contextualised narrative such as the following could have saved SVB:
“We have booked a loss on a set of investments that fell in value. We have acted to reinforce our balance sheet by raising more capital than we lost. Objectively nothing has changed: SVB remains financially sound.”
News release text
SANTA CLARA, Calif., March 8, 2023 /PRNewswire/ -- SVB Financial Group ("SVB") (NASDAQ: SIVB), announced today that it intends to offer $1.25 billion of its common stock and $500 million of depositary shares, consisting of 10 million depositary shares each representing a 1/20th interest in a share of its Series F Mandatory Convertible Preferred Stock ("Preferred Stock"), liquidation preference $1,000 per share (equivalent to a liquidation preference of $50 per depositary share), in separate underwritten registered public offerings. In addition, prior to commencing the offerings, SVB entered into a subscription agreement with General Atlantic, a leading global growth equity investor, to purchase $500 million of common stock at the public offering price in the offering of common stock in a separate private transaction. The subscription agreement with General Atlantic is contingent on the closing of the offering of common stock and is expected to close shortly thereafter. SVB also intends to grant (i) the underwriters in the common stock offering an option to purchase up to an additional $187.5 million of common stock and (ii) the underwriters in the Preferred Stock offering an over-allotment option to purchase up to an additional $75 million, or 1.5 million depositary shares in the Preferred Stock offering. SVB intends to use the net proceeds from the offerings for general corporate purposes. The consummation of each offering is not contingent upon the consummation of the other offering.
Additionally, earlier today, SVB completed the sale of substantially of its available for sale securities portfolio. SVB sold approximately $21 billion of securities, which will result in an after tax loss of approximately $1.8 billion in the first quarter of 2023.
Goldman Sachs & Co. LLC and SVB Securities will act as book-running managers for each offering.
References and further reading
ISOC course links
This content relates to the following short courses at the International School of Communications, available live online and also face-to-face at our training centres in London and Dubai:
- Advanced Communication Strategy
- Advanced Communications and PR Management
- Communication Strategy Design and Development
- Copy-Writing for Marketing, Communications and PR
- Crisis Communication Programme
- Crisis Communication Strategy and Management
- Effective Writing Programme
- Essential Media Relations
- Handling the Media in a Crisis
- Press Release Writing
- Strategic Communications and PR Programme
- Writing for Social Media and the Web
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