Much has been written and discussed about the failure of Silicon Valley Bank (SVB) in the last few weeks. While Polaris Capital Management has never owned SVB, we wanted to address SVB’s collapse on the overall U.S. financial industry.
Founded in 1983, Silicon Valley Bank was a dramatic triumph until March 2023. The company grew with the success of the venture capital movement that created some of the greatest companies in the world, while reinvigorating the U.S. economy. SVB served as one of the central banking players in this ecosystem. Consistent with its growth profile, the stock always traded at a high valuation multiple. Through its banking relations with start-up companies, it often acquired warrants that generated large gains, further supporting its high valuation.
Cryptocurrency became the bread-and-butter of the bank, following the heating market trend. As value investors, we have never invested in these types of companies on valuation alone… but we have also known that these high-flyers are also the ones most likely to crash.
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