Skip to main content
Log In
Alger
  • About Alger
    • Our History
      Our Investment Approach
      Investment Team
      Careers
      Commitment to Sustainability
      Commitment to DEI
      Charitable Giving
      We Remember
  • Strategies
    • Strategies Overview
      Asset Classes
      Vehicles
      Strategy Finder
      Think Further For Retirement
      Large Cap
      Mid Cap
      Small/SMid Cap
      International
      Alternatives
      Specialty
      Focus
      Mutual Funds
      ETFs
      SMAs
      Institutional Separate Accounts
      UCITS
      Collective Investment Trusts
  • Insights
    • Insights
      Blogs
      Alger On the Money
      Alger On the Record
      Manager Commentary
      Capital Markets Outlook
      Retirement Solutions
      Viewpoints
      The Power of Focus
      Perspectives on Growth & Change
      Market Strategy Insights
      Insights on Emerging Markets
  • Newsroom
    Press ReleasesIn the News
  • Contact Us
The AlgerPodcast
.st0 { fill: #999999; } Explore Insights .st0 { fill: #999999; } Subscribe to Emails .st0 { fill: #999999; } .st0 { fill: #999999; } Download PDF

​Podcast: Banking Turmoil and Opportunities

Daniel Brazeau's Photo

Daniel J. Brazeau, CFA;

Senior Vice President
Portfolio Manager, Senior Analyst
Weatherbie Capital, LLC

Alger Dynamic Opportunities Portfolio Manager, Dan Brazeau, CFA, answers investors' questions regarding the recent banking crisis.

​​​​​​​​
Subscribe to the Alger Podcast​ in ​Spotify | Apple Podcasts​ | Stitcher ​​​​
​
We believe there may be more banks that fail in the coming months due to deposit runs and asset/liability mismatches. However, it should be noted we believe this banking crisis is completely different from the Great Financial Crisis of ’08-’09. Alger Dynamic Opportunities Portfolio Manager, Dan Brazeau, CFA, answers investors' questions regarding the recent banking crisis.
​ALEX BERNSTEIN: Hello, I’m Alex Bernstein. And you’re listening to The Alger Podcast, Investing in Growth and Change. The banking industry has had a number of upheavals over the past month, leaving investors with a lot of questions, including are there more to come? To answer some of these questions, I’m joined today by Alger Dynamic Opportunities Portfolio Manager Dan Brazeau. Dan, thanks so much for joining me today.  
DAN BRAZEAU: Thanks, Alex. Great to be here. 

ALEX: Dan, just to jump right in, from your perspective, what exactly happened in the banking sector this past month? 

DAN: So, the banking sector was really thrown into a tailspin with the fall of Silicon Valley Bank last month. Even though it wasn’t a “too big to fail” bank, SIVB’s failure was viewed as a potential canary in the coalmine for the sector in general and perhaps even the economy over the next year. At a basic level, Silicon Valley Bank did a poor job with asset/liability management and was ultimately done in by an old-fashioned bank run. 

Their venture capital funded customer base was taking deposits out of the system which SIVB was meeting by selling securities at a loss, and when the company attempted to raise capital to offset the deposit outflows, the venture capital community that Silicon Valley Bank relied upon pulled approximately $42 billion of deposits out in one day. So, there are very few banks that can handle that kind of a run-on deposits, and Silicon Valley Bank ultimately had to be shut down as a result. 

ALEX: And you don’t see this as a repeat of the banking crisis of 2008-2009? 

DAN: No. It’s completely different than that period. The Great Financial Crisis of ’08, ’09 was marked by poor credit and banks and lenders loosening their lending standards in the previous few years. The banking crisis is completely different from this one. This one has not been set in motion because of subpar lending but because of deposit outflows and the need for liquidity. 

Back then it was really caused by poor lending, shoddy lending standards, a lot of junkie assets on balance sheets. The interesting thing here is if you look at Silicon Valley Bank or other banks that are in trouble, I think their assets are actually pretty pristine. 

The issue is that they were borrowing short with short-term deposits and went and purchased longer-duration assets, government securities that were at low interest rates, and so if you had to sell those securities which they did when deposits started flowing out, you were selling them at a loss, and that’s totally different than what happened in 2008, 2009 where the assets on the balance sheet were, in many cases, pretty bad. So it’s different, but yet the outcome is the same. Your bank got taken over by the government. 

ALEX: Dan, one question a lot of investors are asking is, is this an isolated problem? Or is there more uncertainty to come with banks? 

DAN: I think this crisis will hit banks differently. I think some will not be impacted at all while others could actually be beneficiaries. That said, in general it seems as though the flow of deposits over the past month have been out of smaller and regional banks and into the larger banks which I think are viewed as safe havens. So, in the financial crisis of ’08, ’09, too big to fail was viewed as sort of a negative connotation of these big banks that could go under, and now, I think you’re actually seeing these banks being, at least in the short term, beneficiaries of some of the deposit flows. 

ALEX: Dan, do you think the core problem here was that these banks were unprepared for this kind of run? 

DAN: Correct. I think, in general, there’s very few banks that can withstand a bank run where 25, 35, 40 percent of your deposits leave the system in the course of a day or three days. Banks are just not set up like that. So, you really can’t fault Silicon Valley Bank per se for that kind of a bank run, but what they did leading up to that happening, certainly you can fault them for sort of what they did with their balance sheet.  

ALEX: And do you think their risk managers are now doing anything differently in light of this? 

DAN: I think risk managers at banks really need to evaluate risks on a number of different levels and different areas of potential risk. While credit risk is perhaps the area that is most focused on by risk managers at banks, the failure of Silicon Valley Bank has shown that interest rate risk and asset/liability mismatches need to be considered as well. So, this should be core to the risk management of all banks, but clearly some have done a better job than others. As far as what Silicon Valley Bank could have done differently, at the time rates were rising, I think it’s sort of too late to avoid those losses. I think the problem is that they invested in long duration, fixed rate assets when rates were exceedingly low so that they were in a tough spot once those rates started to rise. So, the lesson is that once the problems start, it’s really impossible to go back and fix. You have to be prepared ahead of time. 

ALEX: The Fed has indicated that rate increases will likely be slowing through the rest of the year. Does this bode well for the industry? 

DAN: In general, I would say that it does. I think slowing of rates should bode well for the banking industry, but a slowing of rates will likely coincide with some weakening of the economy. So, on the one hand, a slowing of rate increases helps banks as it pertains to their interest rate risk and asset/liability management. However, the offset to that would likely be an increase to credit losses and credit issues in the coming quarters. 

ALEX: Dan, Silicon Valley Bank was a backbone to so many tech firms. One has to ask, what might be the trickle-down effect on some of these companies? 

DAN: Well, as you mentioned, the government stepped in and reassured depositors at Silicon Valley Bank that they would be made whole. So, this was obviously a relief to the venture capital and tech community. So, there should be very little near-term disruption to sort of that tech ecosystem. That said, Silicon Valley Bank was a key banking partner to tech and early-stage companies. So, I think there could be some longer-term impacts if that void is not filled by other banking institutions in the coming months. 

ALEX: And should investors be expecting the government to step in and assist every time a bank faces a crisis like this? 

DAN: I don’t think that investors should expect that the government will step in on every bank failure, but they are clearly willing to step in on a limited basis as we’ve seen. So, if there are only a handful of failures, then the government could theoretically backstop more depositors, but that seems unsustainable on a large-scale basis unless there are extraordinary measures put in place which would likely take the cooperation of Congress, regulators and so forth. So, on a smaller scale, I would expect the government to step in. On a larger scale, that’s really not sustainable. 

ALEX: And do you foresee other bank failures looming on the horizon? 

DAN: Yes. I believe there will be more banks that fail in the coming months due to deposit runs and asset/liability mismatches. If the problem spreads, there could be all-system failures due to credit issues down the road. 

If the issue can be contained to a few outlier banks, then perhaps it won’t spread to other parts of the economy. However, if banks dramatically cut back on lending and/or see a credit problem accelerate, then it could negatively impact other parts of the economy. So, the next few months could prove to be critical with regard to how this all plays out. 

ALEX: Dan, I wanted to shift over and talk about you and the Weatherbie team, as portfolio managers. How are you and the team viewing banks now in your portfolios?

DAN: We’re being extremely cautious as it pertains to banks and financial institutions at the moment. Some highly regarded institutions were allowed to fail in the span of a few days, and that was rather shocking really to investors that had been following these banks for a long time. Although we believe there will be some banking winners as a result of the current disruption, it’s not an environment where we feel like it pays to get more aggressive with our financial services positions at the present time. 

ALEX: Did this situation impact your process at all? 

DAN: The process remains unchanged in the sense that we continue to dig deep and get to know our companies well. If anything, the quick demise of these banks demonstrates to us that we need to consider a wide variety of unforeseen scenarios when evaluating companies. You may not be able to anticipate every single black swan event, but a thorough and collaborative research process should help to eliminate most blind spots over time. 

ALEX: Dan, I know we do have some bank holdings in our portfolios. What do you look for exactly, when you’re looking at banks? 

DAN: So, we do have a couple of holdings, but they’re pretty small at this point. At the beginning of the Silicon Valley Bank crisis, we did decide to cut back our bank positions to be more cautious on the sector. So, we have not changed that stance.

Historically it’s been a little bit tricky in the bank sector because we’re growth investors. So, we want to see growth. At the same time, too much growth can be a negative for banks. You don’t want to see them growing too quickly and getting into some credit problems. So, we’ve always taken a pretty cautious view in getting into banks, making sure they have a fair amount of growth but, at the same time, are good stewards of capital and cautious in terms of their lending standards. So that won’t change, but I’d say the bar has been raised in terms of what could get into the portfolio at this point, given that it’s going to be a lot harder at least in the near term for a lot of these banks to see the kind of returns that they had even a couple quarters ago. 

ALEX: Is this current situation providing any opportunities? 

DAN: I would say the current situation is providing us with some additional shorting opportunities. There are banks that we believe are not well-positioned for the new landscape, and we’re currently evaluating a number of different banks that could work as shorts. In addition, the current crisis could spread to other areas, and so we are interested in finding companies that could be at greater risk in a tight credit environment. 

ALEX: Have you added any shorts? 

DAN: We did. We’ve added at least one name. We’re in the process of looking at a couple others. So, we’re actively looking for names that could work on the short side. Of course, a lot of the banks that are at extreme risk have gone down a lot in the past month. So, we’re trying to find names that maybe haven’t been hit quite as hard that have more downside the market’s not really appreciating. So, that’s really what we’re focused on. 

ALEX: Dan, what do you think investors should expect from the banking industry through the rest of the year? 

DAN: I think generally speaking, we should expect more turmoil. I think when Q1 earnings are released, and we’ve got a better picture of what worked and what didn’t work for these banks, we believe there’s going to be certainly some banks that saw a lot of outflows, and many of those banks are not going to be able to handle that. So, when these banks announce earnings, and they say, hey, deposits are down five, ten, 20 percent in the quarter, will that spur another mini bank run in individual names or across the sector? It’s really too early to know, but we could see this small fire spreading over the course of the next quarter or two. 

Then beyond that, you’ve got potentially tighter lending standards, and these banks will need to adjust how they lend, how they treat the asset side of their balance sheet to adjust for less liquidity on the deposits flowing out faster on the liability side. So, if that results in tighter credit standards, you could see it spread to other sectors that rely on borrowing, that they’re going to have to borrow at higher cost or may not be able to borrow at all. So, this could have some knock-on effects down the road that folks are not anticipating. 

ALEX: Dan, what’s the one thought you’d like investors to take away from this conversation? 

DAN: I think, first, that this banking crisis is different than what was experienced during the Great Financial Crisis, and really this kind of environment with a very real threat of additional bank runs hasn’t been experienced in our lifetimes. It pays to be thoughtful and diligent I think with regard to how this might spread, and our team continues to take a diligent approach when it comes to investing on both the long and short sides, and we believe that this will serve us well as we get through the current crisis just as it did during the Great Financial Crisis and other difficult periods. 

We went through the Great Financial Crisis. The team here at Weatherbie Capital experienced that. So, we’ve got a pretty experienced team to help deal with these issues. Just no crisis rhymes with the one that happened before, but there are some things that can be learned in each successive one that pay dividends down the road. 

ALEX: Dan, thanks so much for talking with me this afternoon. 

DAN: ​Thanks, Alex. Great talking with you. 

ALEX: And thank you for listening. For more thoughts on the banking industry, information on Dynamic Opportunities and the Weatherbie portfolios, and for more of our latest insights, please visit www.alger.com.​

​
​
​
​

Recommended Insights for You:


​
The views expressed are the views of Fred Alger Management, LLC (FAM) and its affiliates as of April, 2023. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Holdings and sector allocations are subject to change. 

Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund and ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.

Important Information for UK and EU Investors: This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation.

Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries.

Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub-portfolio manager to financial products distributed by Alger Management, Ltd.

Alger Group Holdings, LLC (parent company of FAM and Alger Management, Ltd.), FAM, and Fred Alger & Company, LLC are not an authorized persons for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA.

Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.

Risk Disclosures:  Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Technology companies may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on investments. Options and Short sales could increase market exposure, magnifying losses and increasing volatility. Assets may be invested in Financial Derivatives Instruments (FDIs) such as Total Return Swaps (TRS) or options, which involve risks including possible counterparty default, illiquidity, and the risk of losses greater than if they had not been used. Issuers of convertible securities may be more sensitive to economic changes. Investing in companies of small capitalizations involve the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Past performance is not indicative of future performance.

As of 1/31/23, the following represents the percentages held of firm-wide assets: Silicon Valley Bank, 0.0%.​

Fred Alger & Company, LLC 100 Pearl Street, New York, NY 10004 / 800.223.3810 / www.alger.com











​




​​



RecommendedContent Title

ETF Investors

This ETF is different from traditional ETFs.

Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. Specifically:

You may have to pay more money to trade the ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.

The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.

These additional risks may be even greater in bad or uncertain market conditions.

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF confidential, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance. For additional information regarding the unique attributes and risks of this ETF, please refer to the prospectus.

ABOUT ALGER

  • Our History
  • Our Investment Approach
  • Investment Team
  • Careers
  • Charitable Giving
  • We Remember
  • Think Further
  • Documents & Forms
  • Fund Literature
  • FAQs

ESG

  • Commitment to Sustainability
  • Alger's Approach to ESG Investing and Oversight
  • Weatherbie’s Approach to ESG Investing and Oversight
  • Redwood's Approach to Responsible Investing
  • Diversity, Equity and Inclusion Statement

ASSET CLASSES

  • Large Cap
  • Mid Cap
  • Small/SMid Cap
  • International
  • Alternatives
  • Specialty
  • Focus

VEHICLES

  • Mutual Funds
  • ETFs
  • SMAs
  • Institutional Separate Accounts
  • UCITS
  • Collective Investment Trusts

TOOLS

  • Strategy Finder
  • 10 Year Estimator
  • Quarterly Expense Estimator

INSIGHTS

  • Featured Insights
  • Capital Markets Outlook
  • Alger On the Money
  • Alger On the Record
  • The Alger Podcast
  • Think Further for Retirement
  • Search All Insights

NEWSROOM

  • Press Releases
  • In the News

LITERATURE

  • Mutual Funds
  • SMAs
  • Institutional Separate Accounts
  • UCITS

CONTACT US

  • All Inquiries

LEGAL NOTICES

  • Proxy Information
  • 2024 Dividends & Distribution Information
  • Sales Charges
  • Customer Relationship Summaries
  • UK Investor Report
  • Form ADVs
View Mobile Site

Copyright Alger All Rights Reserved Privacy Policy Business Continuity Terms and Conditions
youtube channel LinkedIn Instagram