WSO Podcast | E239: Silicon Valley Bank - Interest Rates - William Blair Layoffs | Weekly Wrapup
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0:00 Silicon Valley Bank
5:30 FED Interest Rates
12:30 William Blair Layoffs
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WSO Podcast Episode 239 Transcript:
Patrick (CEO of WSO): [00:00:04] Welcome to the WSO weekly wrap up where I talk with my team about the five most trending discussions in the Wall Street Oasis community. Enjoy! All right, everybody, welcome to another episode of The weekly wrap up. It is March 16th, around noon. So let's let's start off, Matt.
Matthew: [00:00:22] Great. Thanks. Interesting current events going on recently, guys. Not surprising at all. In the in the threads we've been seeing stuff around Credit Suisse, SVB. So we'll lead with that one today. Do you want to give a quick just summary on what's going on with for anyone that's not too familiar with the bank run and how this is going to affect the overall financial financial services industry?
Patrick (CEO of WSO): [00:00:44] Sure. So for those of you that were living in Iraq last week or in Iraq last week, basically Friday, there was kind of a bank run that had started on Silicon Valley Bank. Um, short story trying to simplify it. They had their risk management team didn't necessarily do a very good job in terms of hedging their risk to interest rates. So what happened is I think they had a lot of long duration bonds. And so when you have a lot of long duration bonds, like ten years, theoretically it's a pretty risk free asset. But when interest rates go up as as much as they did and as fast as they did, they do decline in value. So they had a couple billion dollar loss there. And then on top of that, they announced a capital raise. And I think the combination of those two things really started freaking people out. And I think since the deposit base for Silicon Valley Bank is so concentrated, it's like VCs all in this area where I live, right here in the bay. And it's a lot of startups all in the a lot in the same area. Like word spread really fast that there might be potentially be some issues around liquidity. And so as soon as the kind of that spooky, spooky rumor came out, it's kind of becomes a self-fulfilling prophecy.
Patrick (CEO of WSO): [00:02:01] People start ripping millions of dollars out of the bank all at once and they quickly just run out of capital. It doesn't take a lot because of the fractional reserve system that we function under here. So I think the Fed's and then signature bank failed over the weekend. So the Fed stepped in on Friday and then the feds had to step in on Friday for signature bank over the weekend for the same reason. And think the feds announced Sunday, Sunday evening that they were going to backstop all the depositors to try and kind of prevent contagion from all these other regional banks. Um, and basically, I think it was that Sunday night or Monday night? Nabil I think basically what happened was still all these regional banks started crashing in the market. First Republic was under pressure. I think they're still kind of under pressure because now there might be a distressed sale. It's just kind of a total shit show for regional banks. I think people are flying to probably ripping their money out and jumping to like the Bank of America as the city's the JP morgan's of the world.
Matthew: [00:02:59] Yeah. So there was huge inflows on one of the bulge brackets I think that are the major winners of this class. What I'm curious, do we know if this capital raise that they were planning on doing was the result of the decrease in their bond volume of bond values that they saw? Or was it were they using those proceeds for for something else? You know, I'm not.
Patrick (CEO of WSO): [00:03:17] I'm not sure. You know, they.
Nabil: [00:03:18] Lost like 1.8 billion on this bond sale. And then they tried to raise funds to cover that gap that they had. So because of that. Yeah, because that. Yeah. Sell early because of rising interest rates.
Patrick (CEO of WSO): [00:03:28] They had to sell early and the rule the accounting rules you have to mark to market the whole like chunk of it if you sell any of it to cover deposits. So like if you sell like a piece of like this chunk of, of bonds and they have to basically mark it to whatever it's trading at at that point. And so then it looks so they have to show it as a loss. And so then it's like reality starts hitting from those, those that rapid increase in rates. So it was kind of a. A perfect storm for them, you know. But I think the more interesting and or scary part of this is the contagion aspects. And now we're seeing Credit Suisse kind of showing strains and cracks under pressure. You know, they had had some under performance for a while now. And I think the Swiss government has stepped in saying they're going to put 50 billion, 70 billion back then back them up or something like that, Nabil, to try 54.
Nabil: [00:04:21] I think 54 is the right number there. So yeah, they're going to give like liquidity, basically loans or whatever to prop them up.
Matthew: [00:04:28] That's the Swiss government you mentioned. Right. That's doing that because I thought I saw a headline say I think one of the biggest shareholders, Swiss bank of. It's another.
Patrick (CEO of WSO): [00:04:37] Bank. It's another bank.
Matthew: [00:04:38] No, for Credit Suisse. I thought I saw something earlier today around I think some some Saudi business owns a is a large shareholder. And they said I don't think they said they're not providing any more help. I think they said they maximize the help they could provide.
Nabil: [00:04:57] So they just probably like Post-politics. I mean, Switzerland government do do this basically because they can't get it above 10%. They can't buy more of the bank. Even if they give liquidity, there's no upside for them. Right? So they probably just went and pressured the government into getting one.
Matthew: [00:05:10] That makes sense. Yeah. Guess ownership laws, right? Is I guess the reason for it. Yeah. I didn't even think of that. Makes sense. Yeah, definitely interesting times. All right guys. Well that's I think we'll cut it there. I mean, we've heard enough on the news on it's all on the forums. So if anyone wants to learn a little bit more about what's going on, definitely check out the the forums. But we'll move on to the next topic here. I think another interesting conversation to have naturally around interest rates. So we know next week Powell and the rest of the FOMC team are going to be connecting and and coming out with with their new interest rates for the the economy moving forward. So, Pat, what's your guess, I guess, on what are we going to do? I know there's been Let me.
Patrick (CEO of WSO): [00:05:52] Just take this one. Go ahead. Yeah.
Matthew: [00:05:54] It's either 25 beeps, 50 beeps or no change. What are you thinking, Nabil, on on interest rates next week?
Nabil: [00:06:00] Uh, it depends because like today, European Union against, like, it was a surprise. They just raised by 50. I think now the odds are like zero and 25 earlier like before the bank doors were like between 25 beeps and 50. Now it's like zero and 25. I think they'll go for 25. Like, you can't just because if you if you do both, you're bailing out banks and you have, uh, if you cut raising rates now, like suddenly you're going to have massive inflation. There's a chance now that they do quantitative easing. Yeah, they do quantitative easing and like, they print currency and raise rates. So that kind of neutralizes the whole thing, which is I think why, like Yellen, all three of them were there for the thing, right? Fdic, Treasury and Jerome Powell, like for the whole backstop thing. So China said that they're doing both at once, kind of neutralizes it.
Matthew: [00:06:53] So what was was the EU behind the I think they're behind the curve on raising rates a little bit right. Compared to the US, I'm not mistaken. So that's maybe why they did 50 beeps versus I think so.
Nabil: [00:07:05] But they didn't expect 50 because usually in EU, like you can't raise so much without having some protests or whatnot. But this time they did. So that just is like a strong statement I guess that they're going to be aggressive at it. The only thing is like that just puts pressure on the dollar as well, right? If you're raising rates on the euro, then you can't just sit around with zero rates. So I think 25.
Matthew: [00:07:30] It's interesting because here in Canada, the last rate discussions was actually left unchanged. So they didn't do any additional movements. Guess it's all just based on each country's economy. My guess would have been if the banks didn't start collapsing, we probably would have seen 50 beeps and then 25. And then a pause was just my guess on how things are rolling out and the time of when these conversations would have happened would have been closer to Q3. On when a true pause would have would have came. Now I think I'm probably anticipating still 25 if things do continue to break and it gets work worse, then a pause. But if not, it's just kind of where we're at now with a few collapses and a few cracks in the system, I personally think is probably going to be 25, one more, 25 and then a pause comes in the US side of things.
Patrick (CEO of WSO): [00:08:23] I don't think they can go to zero yet. I think it looks really bad if they go to zero.
Matthew: [00:08:27] Yeah, I Think.
Patrick (CEO of WSO): [00:08:28] As a signaling mechanism, if they go to zero, it's like panic.
Matthew: [00:08:31] And think selfishly. You know, a lot of people do want that pivot to come. But I think if you think with that long term had a little bit, you're going to see that we're probably worse off if you do get a pivot too soon. So I'm personally fine like markets chop here kind of go sideways a little bit until Q3.
Patrick (CEO of WSO): [00:08:49] And the data is kind of all over. The data's all over the place because PPI came in less than expected. So it looked really good, I think, yesterday or a couple of days ago, Yesterday or two days ago. Yes, yesterday. So PPI came in really lower than expected, which was great. But CPI was still kind of elevated.
Matthew: [00:09:05] Well I think people forget like last year this time that we were in a bull market. I think this is when markets were kind of peaking around March, February, March, right? So I still think the year over year comps need a role where I think CPI and some of these pricing indicators really start, you know, decelerating now and really coming into play. I think it's wrong now, right, Because if I recall, I think February, March last year was still a really hot period. So I do think, you know, once we start getting into the April, May, the June's and of course obviously a lot of this data is on, you know, past information which is a little bit difficult to make decisions based off of. But I think that's where.
Patrick (CEO of WSO): [00:09:43] You know, jobless claims dropped again unexpectedly, Like so like that's oh, yeah, kind of thing. If jobs if unemployment stays under 4% for it's going to be hard to think that there's any sort of drop in services. It's the services that are just sticky right service inflation, it's not going down. So even though price of eggs are coming down, the price of people is the price of services aren't.
Matthew: [00:10:06] Yeah, you know, I think I'm in the boat. I think that's going to change. But one thing I've always thought of is, you know, when it comes to investing, stuff is always just to look into your own personal world. Like I talk to people, I start hearing things more now. People struggling a little bit more are more conscious on costs, whereas maybe six months ago everyone was just like, Yeah, let's go out and spend money. But now I'm talking to people and you kind of hear it more, I want to save, or this is a lot more expensive, and you kind of see that behavior changing in your own personal life and just trying to apply that a little bit more into things that if I'm seeing it in my own bubble, I'm sure you know the next person seeing it. Another listener hears seeing it amongst their friends and family. So totally. I think the slowdown is coming from like a consumer spending standpoint. Again, just this data. So back looking, it's hard to kind of make these observations on data that's, you know, from a couple months ago.
Patrick (CEO of WSO): [00:10:56] I Don't know how the Fed doesn't have a deal with like Visa or Mastercard to see.
Matthew: [00:11:00] consumer spending but then you'll get the people on the far right freaking out over government oversight and everything. So that's why that doesn't exist.
Patrick (CEO of WSO): [00:11:10] Synonymize it. Blockchain it. Come on.
Matthew: [00:11:12] . Yeah, exactly. Get with the times. Exactly. Right on. Well, yeah, definitely think it can go either way.
Patrick (CEO of WSO): [00:11:19] I mean, when you think about like, how important that data is and like the millions of jobs at stake and the like, it'd be really great if they could always have a really nice, smooth landing and thread the needle perfectly and have.
Matthew: [00:11:31] Real time data, right? It's just having access to real time data to make those decisions versus I think that's why people are, seeing these collapses in banks, not just because maybe there's an assumption that the Fed go too fast, you know, too strong too fast and because they weren't seeing the implications of it trickle through the system, you're not gonna catch the breaks and the collapses ahead of time. It's just going to be as a result of the action. I mean, definitely I think there has to be some modernization in the government. But people always say that, you know, those industries are usually very dated and old school.
Patrick (CEO of WSO): [00:12:06] Yeah, it takes a while.
Matthew: [00:12:07] Yeah, it's not surprising. Anyways, so the third and last we have.
Nabil: [00:12:13] Yeah. Consensus like 25 bits then.
Matthew: [00:12:17] Yes, yes.
Nabil: [00:12:18] Next week. Let's see what happens next week.
Matthew: [00:12:21] I'll lock in, lock in my bed on lock it in 25. We'll talk next Thursday and see what if we were actually transpired. Yeah it's actually transpired. But anyways, last topic here, guys. I think another common theme we've been seeing the past few months, more layoffs. So this time William Blair specifically, you know, laying off a good chunk of the TMT team there. So let's kind of re bring up that conversation from last week, guys. Any tips on how to protect your career in a market like this where there's a lot of layoffs, even just the whole macro situation as well? What are some best practices you should be doing if you do currently have a job but maybe are on, you know, like a team such as Credit Suisse where you don't know what that looks like in 2 to 3 months from now. So Pat, we'll kick it off with you since you're the expert on this type of stuff.
Patrick (CEO of WSO): [00:13:12] I think honestly, like the people coming into William Blair, the interns that are starting this summer, they're probably freaking out the most because it's what it implies is that the full time intern to full time offer rates are probably be much lower than expected. Um actually that that makes me wonder. I haven't looked yet into our company database what that percentage looks like, but I will. I'll pull it up right now.
Matthew: [00:13:35] That's actually a really interesting angle. I think I'd like to steer the conversation that way. Like if you are an intern joining now and you know you're in a situation where you know that intern to full time move, that probability has significantly decreased. Should you be doing anything different while you're still interning there? Because I do think you do obviously move forward with the internship.
Patrick (CEO of WSO): [00:13:58] Well, You try your damnedest to like get the full time offer. But I think there's going to be a lot of heavy networking going on when you're working while you're working through that. Because if you assume you're going to get a full time offer, it's just not a good idea.
Matthew: [00:14:15] So how would you? Go ahead.
Patrick (CEO of WSO): [00:14:19] So I'm looking at some of this data. Let me go to the investment banking industry report because I think it's there. Sorry. Go ahead, Matt.
Matthew: [00:14:29] I was just going to talk about like the networking aspect, like especially as an intern and what I've kind of come accustomed to is the industry, albeit very large. It is a very tight knit community. So especially as an intern, you know, does it look bad if you're, you know, after your days, your networking, grabbing drinks or coffees with people from other banks or should you be a little bit discreet with that networking, especially as an intern? Yeah, I think you want to be.
Patrick (CEO of WSO): [00:14:56] Yeah. You don't want to be, like, announcing it to everybody. I think you should be discreet. But I think that the harder part is finding the time to go do that if you're actually trying to land the full time offer because you're at the office all day and all night. So I think doing stuff on the weekends where needed. I'm looking it up right now here in terms of percentage offer rates. Here we go. Intern offer rates and we see if I can find it. So like some of the higher ones are like, you know, some of these smaller banks. Centerview has a super high offer rate, like 90%. So we have William Blair historically is in like the top 20 bang, like 88, 89%, 88.8% is what we have in our database in terms of Internet offer rates. So that's good. That's the good news for the William Blair people. They usually have extend almost an offer to everybody. So I think you still have pretty good odds. My guess is maybe that drops to 6,070% this year. So your odds are still. Pretty good. Not like historically they're at like 60% and it's going to drop to 40 or something like that. So that's the good news. The bad news is, it's not like as guaranteed a thing this year.
Matthew: [00:16:03] And I could see I guess it being difficult to kind of keep that motivation throughout. Like knowing that as an intern you're gonna have to put in that time. And if that offer rate has decreased, it's like, well, what's the point of kind of going so hard? But I would suggest.
Patrick (CEO of WSO): [00:16:17] Your odds are still good and your odds are still.
Matthew: [00:16:19] Odds are still good. I could see, though, how you know, it does affect some motivation levels. Again, I think it's still you obviously give it 150%.
Patrick (CEO of WSO): [00:16:29] I think people go harder. I think people are going to go harder and like make it more cutthroat. That's what I think. Everyone's going to be there like 7 a.m. and stay till like two in the morning, like every day. How about now?
Matthew: [00:16:40] I would say, though, to those individuals that maybe are a little bit nervous that think we could speak for ourselves given that we have our own little talent recruitment. There's still a lot of demand for people in high be in that analyst level. So, you know, if it doesn't work out at William Blair, I'm extremely confident. You know, if you do the time you put in the effort, you learn some great skills, then I think that could be easily applied and definitely find another role, another investment bank come the following summer for a full time gig.
Patrick (CEO of WSO): [00:17:08] Looks good. Yeah. On your resume to have that internship. And so I think people are going to be more understanding. They they're going to know about these layoffs. So if you don't get that full time offer. Right. The good news is it's not like a bull market where they're going to be like, what was wrong with you? Why are you the one out of 15 that didn't get the offer?
Matthew: [00:17:22] Yes, exactly.
Patrick (CEO of WSO): [00:17:23] It's going to be like, okay, you were the five out of the 15 doesn't necessarily reflect poorly on you. You're the 11 out of the 15 that didn't get it.
Matthew: [00:17:31] You weren't the best. But think it's what we've seen like some of these firms are kind of like banging the table. They need people in there just because of the turnover the industry seen the past couple of years. So yeah, um, definitely don't hang your head low if it doesn't, you don't get that offer. I do think there's still definitely.
Patrick (CEO of WSO): [00:17:47] Stay active meeting people, make sure you're networking internally at the firm as well. So that increases your odds of getting that full time offer. So that means like trying to meet people, not just sticking to your group, meeting people outside your group, making yourself known, and then most importantly, like helping the analysts and the associates taking anything off their plate that you can and doing a good job checking your work. I think if you do those things, you're probably in pretty good shape.
Matthew: [00:18:12] Right on. Yeah. Any thoughts there, Nabil? For this type of stuff.
Nabil: [00:18:17] Not much haven't really worked through a recession or anything, to be honest.
Patrick (CEO of WSO): [00:18:21] You guys are babies. You guys are babies.
Nabil: [00:18:22] Yeah.
Patrick (CEO of WSO): [00:18:24] No way. I was going to business school in oh eight. I was in going to Wharton, so, um. Pretty crazy
Matthew: [00:18:29] that I could see. That's tough to keep the motivation there. You're in business school, and you're just like the whole. Like, the everything was crashing. Economy is literally collapsing. What am I doing here?
Patrick (CEO of WSO): [00:18:40] Well, I was trying to do full time, so I was like, Oh, whatever. And I remember on the forums, people were like, Wall Street Oasis is going to die. I'm like, No, it's like three people, dude, we're not going anywhere. I'm like, Actually, our traffic's exploding and we've seen the same thing. Our traffic is absolutely exploding because I think people are trying to find more information and get some insight. And so I think now is a time where kind of shines because you can get some more kind of inside information around what's going on, What are the thoughts internally into an offer rates, stuff like that which is available in investment banking industry report Yeah, that's the good news. I didn't know William Blair had such a high intern to full time offer percentage. So that's the good news is it's not like one of these banks that historically offers like 50 to 60% and it's going to drop to like 30. It's you still have a decent shot, I think probably at least 50 to 70%. I'm guessing they'll still extend offers. So yeah.
Matthew: [00:19:37] And I think the main thing to kind of remind yourself is these times don't last forever, where it's, you know, what we like to call a bear market. I think taking inspiration from some things you said being around and when there was a recession in oh eight when they were significantly bad times, the times do eventually change, right? And the prosperity does come. So it's all about just building throughout those tough times because it's inevitable when the prosperity does come, you want to kind of be ready for that. And I think you've even spoken to that about the business itself, where during these times, let's keep building, let's keep polishing ourselves for when the time is right. And I think that could be applied in a personal career perspective like this, where it's if things are tough, keep building, keep growing, keep learning new skills for when the bull market does come back, you'll be a shining star and and ready to get picked off in full time. And hallelujah.
Patrick (CEO of WSO): [00:20:23] Yeah, love it.
Matthew: [00:20:25] On that note, let's let's keep the positivity there we'll call it for this week amongst a gloom, gloom and doom.
Patrick (CEO of WSO): [00:20:33] Gloom and doom.
Matthew: [00:20:33] Gloom and doom newsfeed that I'm seeing everywhere. But typically when I think the newsfeed gets bombarded with negativity, I think that's the tail end of these bad times.
Patrick (CEO of WSO): [00:20:41] Come on Crypto is ripping. We're happy.
Patrick (CEO of WSO): [00:20:42] Come on, Crypto.
Matthew: [00:20:45] Not yet.
Nabil: [00:20:46] Are you invested in crypto?
Matthew Kelenc: [00:20:47] Yes, a little bit. I would say I've got an interest of it.
Patrick (CEO of WSO): [00:20:52] I'm still up even in the in.
Patrick (CEO of WSO): [00:20:54] The crypto winter.
Matthew: [00:20:56] That's how you you talk to Pat for the Holding strategy there. Anyways, guys, great carnival. We'll be around next Thursday to see the conversation and see where interest rates ended up and we'll see who's right here. On the next movement. But thanks, guys.
Patrick (CEO of WSO): [00:21:14] Thanks. And thanks.
Patrick (CEO of WSO): [00:21:15] To you, my listeners at Wall Street Oasis.
Patrick (CEO of WSO): [00:21:17] If you have any suggestions.
Patrick (CEO of WSO): [00:21:19] Whatsoever, please don't hesitate to send them my way. Patrick@wallstreetoasis.com and till next time.
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