๐Ÿ”’ PREMIUM – Kokkie Kooyman: Why SVB collapse hit banking stocks so hard; backstory on Absa, Transaction Capital

The collapse of Silicon Valley Bank, the US’s 16th largest, sent shock waves through global markets, knocking banking shares worldwide. In unrelated developments in SA, results from Absa and Transaction Capital disappointed, triggering intense selling pressure on the stocks, both of which are held in the BizNews model portfolio. Our go-to man on financial services, Denker Capital’s Kokkie Kooyman, broke into his ‘bucket list’ holiday in Greenland to explain the relevance of these developments. He spoke to Alec Hogg of BizNews.

___STEADY_PAYWALL___

See timestamped topics below:

  • 00:00 Introduction
  • 02:22 Background to why the Silicon Valley Bank collapsed
  • 09:30 The effect of panic on yield vs safety
  • 09:49 The knock-on effect of a bad decision
  • 11:17 Where we are now with the Fed standing behind the bank sector
  • 13:04 Whether it’s a buying opportunity
  • 13:43 On the risk of a slowdown of bad debts
  • 14:33 On Transaction Capital
  • 16:24 On ABSA’s stumble
  • 18:06 On Signature bank buying back sharesย 
  • 18:42 On “haircuts”

Excerpts from the interview with Kokkie Kooyman

Kokkie Kooyman on the collapse of Silicon Valley Bank

It was the second-largest collapse in the US since Washington Mutual in 2008, so it is quite significant. But the big problem is; one has to go back to the excess liquidity that was created by the Fed post the March 2020 COVID lockdown. And they also continued the QE program, lowered interest rates, flooded the system, and the government, the US government, flooded the system with PPP cheques to help unemployed people or people suffering from COVID. The bottom line is that banks were flooded with deposits. All this excess money didn’t go back into the economy. It went into the banking system, and it then really drove up the prices of profitless tech, as it was called, of the whole crypto bubble. That was fuelled by the money that was created by the Fed. And Silicon Valley Bank was at the centre of this in Silicon Valley and Silvergate. 

Read more: Banks prepared for greylisting, extra scrutiny for third parties, more hurdles for investors โ€“ Kokkie Kooyman

So it was a huge recipient of all those deposits; all the SPACS, all the private equity firms parked their deposits with Silicon Valley because they were entrepreneurial. They were actually a very good bank at doing what they were doing. You could think of them in terms of entrepreneurial spirit, like an Investec in South Africa. So entrepreneurs loved parking money with them. The result was that they had one of the highest concentrated deposit bases in the US. In fact, 55% of their asset base was government securities’ 35 loans. They couldn’t lend out those deposits immediately and parked that in government securities. 

On Transaction Capital

I know them fairly well. Visited them a few times. And as you know, a very entrepreneurial business. Grew that strongly and then WeBuyCars as well. So, number one, the problem with Transaction Capital was its valuation. The valuation was fairly high. In fact, it was too high, but investors were paying up for growth. This is one of the three growth opportunities in South Africa. 

Read more: Transaction Capital, lender to taxi owners, plunges as it forecasts losses

And suddenly, when a player like that says we’ve got a problem, you know, then not only do your earnings fall, but your valuation falls dramatically. And then the tax industry can’t be having an easy time at the moment with higher petrol prices or higher interest rates and unemployment. I haven’t read of any real problem with the loan portfolios inside it. I think it’s just a shock about their future earnings. I hope so. I think so.

Read Also:

Visited 199 times, 1 visit(s) today