William Martin has emerged as the “big short” in the latest banking crisis brought on by the collapse of Silicon Valley Bank. The Rocky Hill, New Jersey-based short seller from Raging Capital Ventures singled out Silicon Valley Bank and announced a short position in a Twitter thread on January 18, the day before the bank’s quarterly earnings. Martin warned of SVB’s large held-to-maturity securities portfolio and accelerating deposit outflows, the exact culprit that brought down the venture capital-focused bank. “As I started digging in what I soon learned … was that they had bought a significant amount of long duration and low interest rate mortgages at the peak of the market and 2021 and we’re facing a significant hole around that,” Martin said on CNBC’s ” Power Lunch ” Thursday. The short seller said the venture boom during years of record low interest rates had made SVB’s management “greedy and complacent” as they piled into long duration, low interest rate mortgages. “The change in interest rates over the last year was so rapid that I think it caught a lot of folks flat footed and Silicon Valley Bank, while an extreme example, is just one of many banks that’s sitting with mortgages and loans and below market interest rates,” Martin said. The collapse of SVB as well as crypto-related Signature Bank prompted extraordinary rescue action from regulators, who backstopped all deposits in the failed lenders and provided an additional funding facility for troubled banks. Many have grown worried that the crisis could spread to the broader banking sector home and abroad. Martin believes the crisis should be fairly contained as most of the institutions are not as exposed to the interest rate risk as SVB. “There are a lot of banks that have these type of loans and mortgages, but not in the significant position that Silicon Valley Bank had,” Martin said. “So I think for the industry as a whole, a lot of banks face a period of de-risking, having to raise equity capital, which ultimately just translates into lower earnings and lower profits, but not the type of events we’ve seen over the last week.” The investor said he covered some of his large short position last Thursday, but was still short SVB into the collapse.
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