Banking crisis: Tennessee bank stocks drop, some find opportunity
When a global banking panic erupted into an ongoing social-media storm this month, Bluwave founder and CEO Sean Mooney said his first instinct was to empty his Nashville-based tech company's local bank account.
Seven-year-old Bluwave has thrived, offering customized talent and business resources to hundreds of private-equity firms, and Mooney takes pride in its conservative budgeting and early success.
But that security seemed to evaporate when top-20 lender and premier startup-funder Silicon Valley Bank melted down on March 6. SVB'S failure posed an existential threat to the financial system and sparked a nationwide bank run until the Federal Reserve, Federal Deposit Insurance Corp. and the Treasury Department reversed course and promised to insure all SVB depositors.
“Every business owner with cash in a deposit account was thinking: ‘I need to get a life raft.'” Mooney said. “I was planning on going to Chase Monday morning. But I'm holding steady."
Federal intervention calmed the panic, but fallout continues.
Customers are uneasy and regional banks are under heavy scrutiny as analysts comb their books for weaknesses —especially those with high rates of startups and unprofitable companies.
“What became clear was SVB not only made poor investment decisions with the safest part of their cash reserves, but they were also making poor investments," Mooney said.
He was happily relieved when Bluwave's local bank reported a healthy loan-to-deposit ratio, a diversified deposit base and conservative loan accounts that are spread across the region.
Investors get scarce
Stocks at prominent Tennessee banks Truist, Pinnacle, Regions, Fifth Third and First Horizon remained down by 20% to 30% on March 16 from the shock of 10 days earlier.
But the crisis brings an opportunity for banks who are able to lure Silicon Valley's wealthy customers.
Citizens Savings Bank and Trust Co. COO Corey Hammonds said his privately-owned, 114-year-old bank, with branches in Nashville and Memphis, is doing better than ever, and he's hoping to grow.
“A lot of our customer base has been with us for 10 or 20 years,” Hammonds said. “They know we're not going to take as much financial risk with their money. No one has come in to pull out their funds. We're well-capitalized. This is an opportunity for us to pick up more customers. We stay focused on what we do, and on our purpose to serve low- and moderate-income residents and help them realize their economic dreams.”
Regions Bank spokeswoman Jennifer Elmore said there's no reason to compare the bank collapses in Northern California with its business model.
“We have a diversified business serving a wide range of consumers and established businesses of all sizes in different industries,” Elmore said. “Regions does not bank venture-capital-backed startups in the technology space (and) has a balance sheet that is resilient, sustainable and will consistently perform.”
Uncertainty, pain ahead
Top cryptocurrency lenders Silvergate Capital Corp. and Signature Bank have followed in SVB'S wake, another sign the tech industry could be poised for a major shakeup. First Republic and Credit Suisse are also seeking government help for various reasons.
Venture-capital funding that flowed freely during the COVID-19 pandemic dried up in late 2022.
Federal banking officials promised to protect depositors at SVB and Signature Bank to prevent a systemic failure. But they said they won't bail out shareholders and some debtholders.
“2020's chaotic financial market caused by the pandemic and then the Federal Reserve's response to it created an atmosphere of irrational exuberance,” Pitchbook's recent “Quantitative Perspectives” report states. “Easy money led to sky-high asset valuations for Vcbacked public listings, which encouraged comparable mature startups to expand their operations with easy money justified by a probable exit right around the corner.”
Instead, inflation soared, the Fed aggressively raised interest rates and investors became scarce.
But the negative impacts aren't uniform across advanced-technology companies. Energy, transportation, pharma and biotech startups are growing while software companies are taking a big hit. And there's a backlog of private startups waiting to go public, according to Pitchbook.
Mooney said he doesn't expect the least-viable startups to survive, no matter how enticing their marketing pitches are.
“The venture-capital days of all-gas, no breaks and free money are done,” Mooney said. “There will be winners and there will be losers. But the economy here in Nashville is diversified with companies that make things, provide business services, health care and tech. And the venture-capital industry will come back better and stronger. Some incredible companies will emerge just like Amazon did back in the day.”
Sandy Mazza can be reached via email at smazza@tennessean.com, by calling 615-726-5962, or on Twitter @Sandymazza.