The collapse of US-based Silicon Valley Bank has sent investors around the world scrambling to assess their exposure to the bank, which was shuttered by US regulators over the weekend.

Silicon Valley Bank was a major lender to early-stage startup technology and healthcare companies, with assets of US$209 billion and US$175.4 billion in deposits.

Concerns surrounding ASX-listed tech companies which banked with SVB eased on Monday following a guarantee from the US federal government department to honor the bank’s depositors, meaning they’ll have full access to their deposits from Monday US time.

But no such guarantee has been made for shareholders and some unsecured creditors.

Using Morningstar Direct data, we identified which Australian ETFs and managed funds have the most exposure to SVB.

What’s happened

The largest US bank to shutter since the 2008 financial crisis, SVB fell into hot water late last week when the tech-focused lender lost $1.8 billion in the sale of US treasuries and mortgage-backed securities, owing to rising interest rates.

In an attempt to shore up liquidity, the bank then decided to raise more capital by selling $1.25 billion of its common stock to investors. On March 9, the company’s stock plunged 60% and the following day the US Federal Deposit Insurance Corporation took control of SVB’s assets.

Eric Compton, equity strategist at Morningstar, says aside from crypto-related meltdowns, this is one of the first banks he’s seen that has really suffered a liquidity crunch, which has forced it to restructure the balance sheet and realize losses on its securities portfolios.

“This has been a key risk lurking beneath the surface for the banking industry, as a number of banks currently have unrealized losses on their securities portfolios, driven by the rising-rate environment. In short, banks bought a number of mortgage-backed securities and Treasuries before interest rates started to rise. As interest rates have risen, the prices of these securities have gone down,” Compton says.

The SVB collapse has rippled through the US banking sector, with New York-based Signature Bank – a big lender to the crypto industry – also shut down by regulators, who cited ‘similar systemic risk’.

Shortly after Signature Bank fell, the US Treasury Department, Federal Reserve and FDIC stepped in and guaranteed all US Silicon Valley Bank and Signature Bank depositors would be honored in full.

Shareholders take a hit, but Australian investors have limited exposure 

While the guarantee from the US government—aimed at preventing a run on other banks—calmed concerns around ASX-listed SVB depositors, Australian shareholders invested in the SVB’s Financial Group arm remain exposed to losses.

Morningstar Direct data lists just over 50 Australian managed funds with exposure to SVB, although overall, the exposure is small with no funds holding more than 3% in the bank’s stock.

Because traditional, open-end managed funds report their holdings with a lag, some funds that are shown as owning the stock could have sold before the weekend.

Topping the list is the Mirova Global Sustainable Equity fund, which had a portfolio weighting of 2.67% in SVB Financial Group as of January 31, 2023.

Franklin Global Growth and Franklin Global Growth (Hedged) funds held 2.16% of SVB Financial Group equity as of 31 December. Both funds are aimed at outperforming the MSCI World ex Australia Index.

Morningstar director of manager research Michael Malseed says SVB was classed as a medium to smaller cap in global equities, meaning it doesn’t present any major index weighting risk.

“The passive fund exposure is only about 3 basis points, but some of the smaller-to-medium cap leaning funds—like those Franklin Templeton funds which have small-to-medium-cap bias—have a greater exposure,” he says.

It is also worth noting that disclosure laws in Australia—which do not mandate funds to disclose their full holdings to the public—mean the full extent of SVB holdings is not publicly available.

The Australian ETFs with SVB exposure

Just 11 Australian ETFs have exposure to SVB Financial Group, and of those, only two have a portfolio weighting of more than 10 basis points - both of which are operated by BetaShares.

As of 28 February, 2023, BetaShares Global Banks ETF (Currency Hedged) – which tracks the performance of the largest global banks outside of Australia - had a portfolio weighting of approximately 58 basis points in SVB Financial Group.

For context, that’s approximately $360,000 exposure in a $59 million ETF.

BetaShares S&P 500 Equal Weight ETF had an exposure of approximately 25 basis points.

Fed guarantee soothes ASX stock stress

The move by US regulators to guarantee depositors in full alleviated the exposure of Australian companies that held cash with the bank, including ASX-listed tech companies like Nitro Software (NTO) which had a little over $12 million in an SVB account when it was shuttered.

On Monday morning before the guarantee was announced, ASX tech stocks fell rapidly, and a flurry of tech companies began revealing banking relationships with SVB.

Alongside Nitro Software, other ASX-listed companies which disclosed cash or cash equivalents held in US or UK SVB accounts included:

  • Sezzle (SZL): US$1.2 million in total cash and cash equivalents
  • Xero (XRO): US$5 million from local transactional banking relationships with SVB
  • Life 360 (360): Approximately $6.1 million in deposits with SVB
  • SiteMinder (SDR): Cash holdings of up to $10 million with SVB.
  • ikeGPS (IKE): Approximately US$3.2 million
  • Dubber (DUB): Approximately A$1.3 million
  • Tiny Beans (TNY): Approximately US$1.3 million via a U.S. based entity
  • Dug Technology (DUG): US$1.6 million of deposits held with SVB and a further US$0.9 million of cash in transit from SVB UK accounts to the company’s Australian transactional accounts

Read more on how SVB's collapse sends a warning about risks from rising interest rates to our financial system.