The sudden collapse of Silicon Valley Bank (SVB) has sent a shockwave across the U.S. banking sector, with stocks of regional banks such as First Republic whipsawing in the past 24 hours. But the next institutional failure is more likely to hit an investment bank than a regional one, according to Robert Kiyosaki, investor and the author of the 1997 bestseller Rich Dad Poor Dad.
Kiyosaki, 75, is known for predicting the 2008 downfall of Lehman Brothers, and he sees similar red flags at SVB, before its shutdown, and Credit Suisse now. Kiyosaki believes SVB’s demise primarily stems from poor asset allocation and a lack of regulatory oversight—much like Lehman Brothers 15 years ago. And the government’s intervention after the fact will only exacerbate the problem and ultimately hurt taxpayers, he predicts.
The Fed, the Treasury Department and the Federal Deposit Insurance Corporation (FDIC) said March 12 they will make SVB depositors whole even beyond the federally insured amount of $250,000.
“What I saw inside of Lehman and what we just learned over the weekend as to the way this bank was managing itself, it’s just bloodcurdling irresponsibility and the [Federal Reserve] enabled it,” Kiyosaki said. “They’re essentially just blowing up these bad actors.”
However, Credit Suisse is subject to more regulatory oversight than SVB because of its size. The Swiss bank is on the international Financial Standards Board’s list of banks deemed systemically important and is required to undergo annual stress test analysis by the Fed. These stress tests are conducted to make sure a bank has enough capital to withstand an economic crisis such as a recession or a market crash. SVB didn’t meet the capital requirement—assets of $250 billion—for these tests.
Kiyosaki’s concern centers on the bond market, which is a key factor that brought down SVB. When interest rates rise, bond prices fall. Before its closure, SVB held a large Treasury bond portfolio whose value had dropped so much in the past year that it wasn’t enough to cover the bank’s cash needs when it had to be sold.
Exposure to the bond market, and a recent history of losses
Credit Suisse also has a high exposure to bond assets, Kiyosaki noted. And that doesn’t look good on top of the Swiss bank’s already long string of losses and scandals in recent years.
Following his comments, Credit Suisse today (March 14) said it lost $8 billion last year due to a wave of client withdrawals. The earnings report also raised alarms on the bank’s financial integrity. Credit Suisse was originally scheduled to report 2022 earnings on March 9, but a last-minute letter from the Securities and Exchange Commission asking the bank to revisit its financial statements delayed the reporting date.
In its annual report today, the Swiss bank said its internal control over financial reporting was not effective because it failed to adequately identify potential risks to financial statements. Its shares fell 2 percent following the earnings release. Its stock is down 67 percent in the past year.
To quell investors concerned over the impact of SVB, Credit Suisse CEO Ulrich Körner told Bloomberg today SVB was “somewhat of an isolated problem” and the bank follows “materially different and higher standards when it comes to capital funding, liquidity and so on.”