"All numbers, no narrative," awful communications drove SVB to failure
A bank in crisis shows why risk management is the more important communications function, and how Silicon Valley fumbled the bag
Bank Failure: Silicon Valley Bank suddenly collapsed this week after miscommunicating plans to raise capital. This led to a run on the bank as of Thursday evening, with venture investors on Thursday night frantically urging startups to withdraw deposits ASAP (TechCrunch). After the stock dropped over 80% in afterhours trading and $43 billion in withdrawals, the FDIC took full control of the bank on Friday morning. Some startups who banked with SVB say they will delay wage payments in the short-term. But the deposit mismatch is expected to be resolved quickly in the coming weeks.
PRTwitter lambasted the coms team: In a thread receiving 1.5 million views, Chief Communicator at Activision Blizzard, Lulu Cheng Meservey pointed to obvious missteps in the banks’ communication strategy. She highlighted that the financial press release was “all numbers, no narrative,” allowing SVB’s vast community of VCs and startups to misinterpret what should have been a routine capital adjustment by the bank to respond to rate hikes. Other blunders included…
Never say “stay calm”: While SVB may not have had a choice on the bad timing of the announcement, as the public had a heightened sense of uncertainty in the face of a separate banking collapse of crypto lender Silvergate, Lulu highlights that SVB’s CEO blundered corporate messaging by repeating to concerned customers to “stay calm,” a message which adds on to public fears rather than allay them.
Cross-channel oversight: Lulu points to an oversight in message alignment across channels. Important context for SVB’s liquidity strategy and its explanation for raising capital was laid out clearly in the company’s 8-K filings and should have been understood by its investor audiences. Crucially, Lulu says SVB should have made sure this financial context made its way to customers.
VCs also told a doomsday self-fulfilling prophecy
SVB’s communications missteps weren’t helped by VCs. Influential venture investors such as Sequoia and Peter Thiel’s Founders Fund sounded the alarm early on Thursday night, urging startups to pull deposits from SVB, activating a flood of outflows which obliterated SVB’s financial position (Axios).
Corporate stakeholders in the crisis took to LinkedIn to express their concerns about the bank run and its many effects. SVB’s Head of Product, Sanjay Gosalina shared his thoughts by reposting a quote from an article from fintech VC Partner Jeremy Solomon which asked why “select venture funds” were bailing on SVB all at once, implying that VCs needed to trust SVB as a banking partner and avoid a panic over a minor issue.
This sets a tragic scene, where VCs told a self-fulfilling prophecy. Because they thought SVB would implode, they told others, which caused it to implode.
The reputational loss of credibility amongst SVB’s most important constituency of venture capital investors was all it took to collapse the 40-year old mid-size bank. In other words, as social media finance influencer Deepak Shenoy put it, “In banking, perception is reality.”
Neglected Risk Management
There’s an unequivocal expert consensus that SVB failed to communicate. Because of its size, trusted legacy as a top 20 bank by assets in the US, and deep roots in Silicon Valley, SVB's failure to communicate is a failure in risk management. They simply should have known better.
Did SVB not have an issues team? A bank of SVB’s size has the resources to dedicate to communications. The industry standard is to have a team or outside agency assistance regularly monitor for any potential issue that could cause harm to a company’s reputation. Part of this team’s responsibility is to vet all external communications making sure it will be understood and welcomed by all stakeholders, investors most of all.
Why did key venture investors abandon SVB so quickly? VCs are so core to Silicon Valley that it’s impossible to imagine a banking partner without their support. It’s a symbiotic relationship. Something had to go wrong.
What communicators are telling their clients
As corporate flacks, agency and in-house, we never miss the opportunity to discuss widely reported news of a brand in crisis with our clients and senior leadership. It’s times like these where the value of PR and corporate communications is concrete. These case studies help us to demonstrate our value to our key stakeholders.
Startups, entrepreneurs and venture investors, can sometimes see PR as one-sided, where the goal is to land a puff piece and the value of media is promotional and pulls customers in.
In the case of SVB, the big takeaway message is that SVB overlooked the risk that customers will start to push away out of loss of trust and credibility.
Here are your talking points:
PR doesn’t just serve marketing promotion, we manage reputation risks too: That feels like an abstraction, but in reality, it’s the perception that the public, and each one of your stakeholders have for your brand. In this case, the reputational risk that needed managing was in what influential VCs think of your credibility.
Communications is cross function, otherwise we struggle to inform others: SVB was defeated by the silos by not taking a top down view of its corporate messaging. A manger with this high level view would easily have seen that key investor information needed to be pushed out to customers.
We can’t do it without senior leadership support: Simply put, there was no media or even a Tweet from SVB effectively addressing the situation. SVB completely neglected communicating with the media in advance of the release of the 8K. As a result, SVB totally lost control. CEO Gregory Becker could have eased market panic by calling in to CNBC or Bloomberg on Thursday and fought back against fearmongering on Thursday. He and his team failed to take the bull by the horns. The market told the story for him, and “panic” was the only message that pulled through.
I hope case serves us all as a reminder of the importance of strategic and proactive communication to manage risks and maintain a positive reputation. And to never say “stay calm” as a way to avoid panic.
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Top coverage of SVB’s collapse:
Axios: Silicon Valley's burning bank
Bloomberg: Peter Thiel’s Founders Fund Advises Companies to Withdraw Money From SVB
WSJ: Silicon Valley Bank Closed by Regulators, FDIC Takes Control
Techcrunch: Silicon Valley Bank shoots self in foot
What else I’m reading this week:
Axios Communicators featured viral brand misinformation on TikTok, Disney's somber crisis response, and incident planning at this year's Oscars.
Stablecoin USDC from Circle had a portion of its deposits in two banks that failed this week, Silicon Valley Bank and Silvergate, causing an over $1 billion exodus from the cryptocurrency as crypto investors are on edge over contagion risks (CoinDesk).
Public Affairs:
“A ban on the export of American culture”
A bipartisan bill pressuring TikTok was introduced in the Senate on Tuesday. The bill would set up new government rules and interagency processes to address risks from foreign technology. In response, TikTok issued a statement that it “appreciates” Congress’ willingness to address national security and called the potential ban “a ban on the export of American culture and values to the billion-plus people who use our service worldwide.” (WSJ)
“[Rate hikes] will be higher than anticipated”
Chairman of the Federal Reserve Jerome Powell warned Congress that the Fed may decide to hike interest rates even higher in order to fight inflation due to stronger than expected economic data in the first two months of the year. The announcement signals further monetary tightening and resulted in all three major indexes falling sharply by the close of the trading day. (CNN)
Executive visibility:
“We are capitalists”
That was the message Bank of America CEO Brian Moynihan had for shareholders on Tuesday, indirectly responding to criticism from the political right that Wall Street Banks and state-backed institutional investors put ESG issues over shareholder returns. Moynihan’s remarks show one Wall Street bank’s attempt to cautiously take a middle ground and deflect criticism as ESG investing is politicized in the run up to the 2024 US presidential election. (Reuters)
“Cash flow positive”
Elon Musk said that Twitter could become cash flow positive as soon as next quarter, speaking at a Morgan Stanley investor conference on Tuesday. The aspirational target was a positive signal to investors that the $3 billion in aggressive cost cuts and layoffs have improved the company's financial position, after taking on a vast amount of debt when it was acquired by Musk last year (Reuters).
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