Rocket Lab has US$38 million in collapsed US bank

Rocket Lab's launch site on Mahia Peninsula.

By Susan Edmunds,
Published by Stuff, 12 March 2023

Rocket Lab has US$38 million (NZ$61.96m) in Silicon Valley Bank (SVB), which collapsed on Friday (UST).

SVP the United States’ 16th-largest bank, failed after depositors hurried to withdraw money amid anxiety over the bank’s health. It was the second-biggest bank failure in US history after the collapse of Washington Mutual in 2008.

The bank has been lending to the tech industry for four decades and is known for lending to start-ups.

A spokesperson for Rocket Lab said the money was about 7.9% of the company’s US$484m total cash and cash equivalents and marketable securities as of December 31.

She said the company was not facing a liquidity issue because 92% of its money was with other financial institutions. “[We] do not expect it to impact our operations at this time.

“The process for recovering all, or a portion, of Rocket Lab’s funds with SVB will be a highly regulated one that will play out over time, and we’ll monitor its progress closely.”

Economist Brad Olsen said the extent of the impact of the collapse on New Zealand more generally would depend on what tech businesses had investments or cash with SVB.

“That’s not clear at present.”

But he said it was likely the effects would be contained in the tech sector rather than spread more generally.

Greg Smith, head of retail at Devon Funds Management, said there would be concerns about contagion and fear prompting a run on other banks.

But he said the Australasian banks, including New Zealand’s, had good levels of liquidity.

The US tech sector is already feeling the impact.

“This is an extinction-level event for startups,” said Garry Tan, chief executive of Y Combinator, a startup incubator that launched Airbnb, DoorDash and Dropbox and has referred hundreds of entrepreneurs to the bank.

“I literally have been hearing from hundreds of our founders asking for help on how they can get through this. They are asking, ‘Do I have to furlough my workers?’”

Nearly half of the US technology and health care companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers, according to the bank’s website.

The bank also boasted of its connections to leading tech companies such as Shopify, ZipRecruiter and one of the top venture capital firms, Andreesson Horowitz.

Tan estimated that nearly one-third of Y Combinator’s startups would not be able to make payroll at some point in the next month if they could not access their money.

Internet TV provider Roku was among casualties of the bank collapse. It said in a regulatory filing on Friday that about 26% of its cash was deposited at Silicon Valley Bank.

Roku said its deposits with SVB were largely uninsured and it didn’t know “to what extent” it would be able to recover them.

As part of the seizure, California bank regulators and the Federal Deposit Insurance Corporation (FDIC) transferred the bank’s assets to a newly created institution – the Deposit Insurance Bank of Santa Clara. The new bank will start paying out insured deposits on Monday. Then the FDIC and California regulators plan to sell off the rest of the assets to make other depositors whole.

The failure arrived with incredible speed. Some industry analysts suggested on Friday that the bank was still a good company and a wise investment. Meanwhile, Silicon Valley Bank executives were trying to raise capital and find additional investors. However, trading in the bank’s shares was halted before stock market’s opening bell due to extreme volatility.

Shortly before noon, the FDIC moved to shutter the bank. Notably, the agency did not wait until the close of business, which is the typical approach. The FDIC could not immediately find a buyer for the bank’s assets, signaling how fast depositors cashed out.

The White House said Treasury Secretary Janet Yellen was “watching closely.” The administration sought to reassure the public that the banking system is much healthier than during the Great Recession.

“Our banking system is in a fundamentally different place than it was, you know, a decade ago,” said Cecilia Rouse, chair of the White House Council of Economic Advisers. “The reforms that were put in place back then really provide the kind of resilience that we’d like to see.”

Additional reporting AP

See: Original Article