Mark Cuban Says This Key Factor Will Determine Whether SVB Fiasco Boomerangs Into A Contagion

Shark Tank fame Mark Cuban shared his take on the problems staring at the banking system and the broader economy following the collapse of Silicon Valley Bank, owned by SVB Financial Group SIVB.

He discussed the bank's failure and the potential wide-ranging consequences in a Twitter Space hosted by Mario Nawfal.

What It Means For Small Startups, Economy: It’s going to be very painful for small startups that have been banking with Silicon Valley Bank, especially to fund payrolls, Cuban said.

How much of the uninsured deposits, which he termed as advance dividends, are returned to depositors through Wednesday will determine the response to the crisis, he said. If about 50-60% are returned across the board, people will have confidence the system is working, and if 10% or less are returned, people are going to question how the process is going to work, he added.

The next question will be how well they communicate about what is happening for the remaining 50%, the billionaire investor said. He sees a smaller contagion if a timeline is not communicated and there is no ongoing communication.

Delving into the macro impact, Cuban said the crisis would likely make it more difficult to raise capital for even great companies going forward due to the checks and balances that will likely come in place.

See Also: To Startups To Invest In

On His SVB Exposure: When asked what he would do for companies in his portfolio with SVB exposure, he said, “I am writing checks.” He suggested exposure of his portfolio companies is to the tune of about $8 million to $10 million.

His drug distribution company Cost Plus has a $3.1 million exposure, he said, adding that he was staying up late, talking to bankers to get accounts opened up at other banks, and will write checks on Monday to make sure that payrolls and payables are covered.

On Government Intervention: It’s rare that anyone assigns a probability greater than zero for bank runs, and therefore no one could be blamed, Cuban said. High-profile VCs telling all their companies to yank money from SVB has led to $42 billion taken out within eight or ten hours, he noted.

“This really is a confluence of events that nobody would have predicted,” he said. These are situations where the government comes in, he added.

It doesn't necessarily have to be a bailout, but there are good assets and “If you are buying the good assets, that solves the liquidity problem,” Cuban said. “This isn’t exactly a bailout but taking care of the liquidity side of the problem and your risk is the interest rate delta,” he added.

Read Next: Bill Ackman Says Government Has 48 Hours To Fix The SVB Mess: 'A Soon-To-Be-Irreversible Mistake'

Photo: Gage Skidmore on flickr