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Silicon Valley Bank’s Assets Seized By US Regulators

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Silicon Valley Bank

The assets of one of Silicon Valley’s top banks were seized by regulators on Friday, marking the largest failure of a U.S. financial institution since the height of the financial crisis nearly 15 years ago.

Silicon Valley Bank, the nation’s 16th-largest bank, failed this week after depositors rushed to withdraw funds amid concerns about the bank’s health. After the failure of Washington Mutual in 2008, it was the second-largest bank failure in US history.

The bank primarily served technology workers and venture capital-backed businesses, including some of the industry’s most well-known brands.

“This is an extinction-level event for startups,” Garry Tan, CEO of Y Combinator, launched Airbnb, DoorDash, and Dropbox and has referred hundreds of entrepreneurs to the bank, told the Associated Press.

“I’ve heard from hundreds of our founders asking for advice on how to get through this. They’re wondering, ‘Do I have to furlough my employees?'”

There appeared to be little chance of the chaos spreading throughout the banking sector, as it did in the months preceding the Great Recession. The largest banks were most likely to cause an economic meltdown to having strong balance sheets and ample capital.

Silicon Valley Bank's Assets Seized by US Regulators

Silicon Valley Bank customers

According to the bank’s website, nearly half of the U.S. technology and healthcare companies that went public last year after receiving early funding from venture capital firms were Silicon Valley Bank customers.

The bank also boasted of its connections to leading technology companies such as Shopify, ZipRecruiter, and Andreesson Horowitz, one of the top venture capital firms.

Tan estimates that nearly one-third of Y Combinator startups will be unable to make payroll within the next month if they cannot access their funds.

Roku, an Internet TV provider, was one of the victims of the bank’s demise. It disclosed in a regulatory filing on Friday that Silicon Valley Bank held approximately 26% of its cash, or $487 million.

Roku stated that its deposits with SVB were largely uninsured and did not know “to what extent” it could recover them.

As part of the seizure, California bank regulators and the FDIC transferred the bank’s assets to the Deposit Insurance Bank of Santa Clara, a newly formed institution. On Monday, the new bank will begin paying out insured deposits. The FDIC and California regulators intend to sell the remaining assets to make other depositors whole.

Silicon Valley Bank's Assets Seized by US Regulators

Attempting to raise capital

The banking sector has been in turmoil all week, with shares falling by double digits. Then, on Friday, news of Silicon Valley Bank’s troubles pushed shares of almost all financial institutions even lower.

The failure struck with lightning speed. According to some industry analysts, the bank is still a good company and a wise investment. Meanwhile, executives at Silicon Valley Bank were attempting to raise capital and find new investors. However, extreme volatility halted trading in the bank’s shares before the stock market opened.

The FDIC decided to close the bank shortly before noon. Notably, as is customary, the agency did not wait until the end of the business day. The FDIC could not immediately find a buyer for the bank’s assets, indicating how quickly depositors cashed out.

Treasury Secretary Janet Yellen is “watching closely,” according to the White House. The administration attempted to reassure the public that the banking system is in much better shape than it was during the Great Recession.

“Our banking system is fundamentally different than it was a decade ago,” said Cecilia Rouse, chair of the White House Council of Economic Advisers. “The reforms implemented at the time provide the kind of resilience that we’d like to see.”

After the value of mortgage-backed securities linked to ill-advised housing loans collapsed in 2007, the world experienced the worst financial crisis since the Great Depression. The Wall Street panic caused the demise of Lehman Brothers, a firm founded in 1847. Because major banks were so intertwined, the crisis caused a cascading breakdown in the global financial system, putting millions out of work.

According to the FDIC, Silicon Valley Bank, based in Santa Clara, California, had $209 billion in total assets at the time of its failure. It was unclear how many of its deposits exceeded the $250,000 insurance limit, but previous regulatory reports showed that many accounts did.

On Thursday, the bank announced plans to raise $1.75 billion to strengthen its capital position. This frightened investors and shares fell 60%. They fell even further before the opening of the Nasdaq, where the bank’s shares were traded.

As the name suggests, Silicon Valley Bank was a major financial conduit between the technology sector, startups, and tech workers. If a startup founder wanted to find new investors or go public, establishing a relationship with a bank was thought to make good business sense.

Founded in 1983 during a poker game by co-founders Bill Biggerstaff and Robert Medearis, the bank leveraged its Silicon Valley roots to become a financial cornerstone in the tech industry.

Bill Tyler, CEO of TWG Supply in Grapevine, Texas, said he first noticed something was wrong when one of his employees texted him at 6:30 a.m. Friday to complain about not receiving their paychecks.

TWG, which has only 18 employees, had already sent the check money to a payroll services provider that used Silicon Valley Bank. Tyler was trying to figure out how to pay his employees.

“We’re waiting on about $27,000,” he explained. “It’s already a late payment. It’s already an awkward situation. I don’t want to ask any of my employees, “Hey, can you wait until next week to get paid?”

Silicon Valley Bank’s ties to the technology sector exacerbated its problems. After a growth surge during the pandemic, technology stocks have taken a beating in the last 18 months, and layoffs have spread throughout the industry. Venture capital funding is also on the decline.

At the same time, the Federal Reserve’s fight against inflation and an aggressive series of interest rate hikes to cool the economy weighed heavily on the bank.

The value of generally stable bonds begins to fall as the Fed raises its benchmark interest rate. That is not usually a problem, but when depositors become concerned and withdraw their funds, banks may be forced to sell those bonds before they mature to cover the departure.

That is precisely what happened to Silicon Valley Bank, which was forced to sell $21 billion in highly liquid assets to cover the unexpected withdrawals. It suffered a $1.8 billion loss on the sale.

Ashley Tyrner, CEO of FarmboxRx, said she had spoken with several friends whose businesses are venture-backed. She described them as “beyond themselves” after the bank’s failure. Tyrner’s chief operating officer attempted to withdraw funds from her company on Thursday but could not do so in time.

“One friend said they couldn’t make payroll today and cried because they had to notify 200 employees,” Tyrner said.

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Nissan Accused Of Dumping Its Electric Car Pioneers

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Owners of Nissan Leaf electric cars have accused the company of “dumping its pioneers” after it informed that its app would no longer work with older models.

nissan

Nissan Accused Of Dumping Its Electric Car Pioneers

According to the company, the app, which allows remote control of features such as heating, is no longer working since the UK’s 2G network has been turned off.

Customers have reacted angrily, telling the BBC that they did not expect it to be pulled.

Experts predict that the problem will affect more electric vehicles as the market expands.
The app’s withdrawal affects around 3,000 Leafs and e-NV200 vehicles manufactured before 2016.

The older vehicles have 2G control modules connecting with the app.

According to the BBC, Nissan said: “The NissanConnect EV app currently linked to Nissan Leaf and e-NV200 vehicles produced up until 2016 will shut down from 1 April 2024 in preparation of the 2G technology sunset.”

nissan

Nissan Accused Of Dumping Its Electric Car Pioneers

According to the report, “Owners will, however, still be able to use key features such as Climate Control Timer and Charging Timer directly from their car’s Navigation System.”

Affected drivers expressed dismay to the BBC, partly because mobile network operators will not phase out 2G until the decade’s end.

“I was very surprised,” remarked Max Siegieda, Manchester’s 2013 Nissan Leaf owner.

“I expected at least six months, if not a year, to organize alternatives. This is a significant component of the car that’s being discontinued.”

nissan

Nissan Accused Of Dumping Its Electric Car Pioneers

He described the app’s remote access for amenities like heating the car or charging remotely at cheaper times as “a major selling point” when he purchased the car used in 2022.

He had already considered upgrading but now says he would be “reluctant” to buy another car  “because of the lack of notice” they provided about the app termination.

SOURCE – (BBC)

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Apple Gets Fined Nearly $2 Billion By The EU For Hindering Music Streaming Competition

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LONDON — On Monday, the European Union imposed its first antitrust penalty against Apple, fining the US tech behemoth almost $2 billion for unfairly favouring its own music streaming service by prohibiting rivals such as Spotify from informing users how to pay for cheaper subscriptions outside of iPhone apps.

Apple prohibited streaming services from informing users about payment options available through their websites, which would avoid the 30% fee charged when people pay through apps downloaded from the iOS App Store, according to the European Commission, the 27-nation bloc’s executive arm and top antitrust enforcer.

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Apple Gets Fined Nearly $2 Billion By The EU For Hindering Music Streaming Competition

“It’s illegal. And it has had an impact on millions of European consumers who were unable to freely choose where, how, and at what price to purchase music streaming subscriptions,” said Margrethe Vestager, the EU’s competition commissioner, at a news conference in Brussels.

Apple, which opposes the judgment, acted in this manner for a decade, resulting in “millions of people who have paid two, three euros more per month for their music streaming service than they would otherwise have had to pay,” she said.

It culminates a heated, years-long battle between Apple and Spotify for music streaming domination. Five years ago, a complaint from the Swedish streaming service sparked the investigation that resulted in the 1.8 billion euro ($1.95 billion) penalty.

The ruling comes the same week that new laws are implemented to prevent tech behemoths from dominating digital markets.

The EU has spearheaded global attempts to push down on Big Tech companies, including three fines totalling more than 8 billion euros for Google, charges against Meta for distorting the online classified ad market and forcing Amazon to reform its business practices.

The commission stated that Apple’s sanction is so hefty because it includes an additional lump sum to dissuade it from repeating the offence or other internet companies from committing similar offences.

It is not the only punishment that the tech behemoth could face. Apple is also attempting to resolve a second EU antitrust investigation into its mobile payments service by committing to open up its tap-and-go mobile payment system to competitors.

Apple fired back at the commission and Spotify, announcing it would appeal Monday’s penalties.

“The decision was reached despite the Commission’s failure to uncover any credible evidence of consumer harm, and ignores the realities of a market that is thriving, competitive, and growing fast,” the business said in a press release.

It claimed that Spotify would gain from the EU’s stance, citing that the Swedish streaming behemoth met with the commission over 65 times throughout the probe, has a 56% share of Europe’s music streaming market, and does not pay Apple for using its app store.

“Ironically, in the name of competition, today’s decision just cements the dominant position of a successful European company that is the digital music market’s runaway leader,” Apple said in a statement.

Spotify hailed the EU penalties but did not answer Apple’s charges.

“This decision sends a powerful message — no company, not even a monopoly like Apple, can wield power abusively to control how other companies interact with their customers,” Spotify wrote in a post on its website.

apple

Apple Gets Fined Nearly $2 Billion By The EU For Hindering Music Streaming Competition

The commission’s examination was initially focused on two concerns. One example was the iPhone maker’s policy of forcing app developers selling digital material to utilize its in-house payment system, which charges a 30% commission on all subscriptions.

However, the EU later shelved that to focus on how Apple restricts app developers from informing their users about cheaper options to pay for subscriptions that do not require using an app.

According to the research, Apple prohibited streaming businesses from informing users about the cost of subscription offers outside of their apps, including links to pay for alternative subscriptions, and even contacting customers about alternate pricing alternatives.

“As a result, millions of European music streaming users were left in the dark about all available options,” Vestager stated, adding that the commission’s inquiry revealed that slightly over 20% of consumers who would have signed up for Spotify’s premium service did not do so due to the restrictions.

The fine comes just before new EU laws to stop big corporations from dominating digital markets are slated to take effect.

The Digital Markets Act, which goes into force on Thursday, imposes a set of do’s and don’ts on “gatekeeper” corporations such as Apple, Meta, Google parent Alphabet, and TikTok parent ByteDance, putting them under the prospect of heavy fines.

apple

The EU fines Apple nearly $2 billion for impeding music streaming competition.

The DMA’s restrictions are intended to deter tech titans from engaging in the type of behaviour at the centre of the Apple inquiry. Apple has previously stated that it will comply by allowing iPhone customers in Europe to use app stores other than its own and allowing developers to offer alternative payment mechanisms.

Vestager warned that the commission would closely monitor how Apple followed the new guidelines.

“Apple will have to open its gates to its ecosystem to allow users to easily find the apps they want, pay for them in any way they want and use them on any device that they want,” she said.

SOURCE – (AP)

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Boeing Wants To Buy Back The Company That Builds The Body Of Its Troubled Max Planes

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Boeing announced that it is in talks to acquire Spirit AeroSystems, a significant supplier that was part of Boeing until its 2005 sale and was also implicated in an Alaska Airlines mid-air door plug explosion.

The Wall Street Journal and the Seattle Times reported on the negotiations earlier Friday. Spirit shares rose 15% in Friday trading on the reports. However, shares were down 10% from the Alaska Air incident in early January to Thursday’s close and 70% since a March 2019 tragic crash of a Boeing 737 Max, which resulted in a 20-month banning of the jet.

boeing

Boeing Wants To Buy Back The Company That Builds The Body Of Its Troubled Max Planes

Boeing sold Spirit in 2005 for $900 million in cash. Spirit AeroSystems, headquartered in Wichita, Kansas, manufactures critical components for several Boeing aircraft, notably the 737 Max fuselage. The pieces are subsequently shipped by train to Boeing’s facility in Washington state.

“We believe that the reintegration of Boeing and Spirit AeroSystems’ manufacturing operations would further strengthen aviation safety, improve quality and serve the interests of our customers, employees, and shareholders,” the company stated late Friday night. “Although there can be no assurance that we will be able to reach an agreement, we are committed to finding ways to continue to improve the safety and quality of the airplanes on which millions of people depend each and every day.”

Spirit has faced its own set of quality control challenges in recent years. The problems had gotten serious enough that Boeing agreed to give it more money to remedy Spirit’s quality and reliability issues, affecting Boeing’s output. The payments resulted in an additional $60 million in revenue last year and $395 million in 2024 and 2025.

These payments indicate Boeing’s incentive for a contract with Spirit. It can only return to profitability if the problems at Spirit are also resolved. And it will cost Boeing money to resolve those issues, whether it is the largest client or the owner of those businesses.

boeing

Boeing Wants To Buy Back The Company That Builds The Body Of Its Troubled Max Planes

Last year, Boeing contributed $3.9 billion to Spirit AeroSystems’ revenue, accounting for approximately 64% of total revenue. Spirit’s second largest customer is Airbus, which competes with Boeing. If Boeing repurchases Spirit, it will unlikely be able to retain that portion of the business.

After reports of a prospective sale raised shares, Spirit’s market capitalization at the close of trade Friday was $3.7 billion, or a little less than what Boeing paid Spirit as its largest supplier last year. However, after five years of net losses totalling $31.5 billion, Boeing’s balance sheet finished 2023 with only $12.7 billion, a decrease from $14.6 billion the previous year.

An initial study from the National Transportation Safety Board on the January incident with the door plug blowing out aboard the Alaska Airlines aircraft discovered that the jet left Boeing’s plant in October with four bolts missing that were required to secure it in place.

However, Boeing replaced the door plug and the missing bolts since the fuselage arrived at the factory with issues with five rivets installed by Spirit AeroSystems. Even if Boeing was ultimately to blame for the mishap, quality flaws at Spirit could have played a role.

The NTSB has yet to assign blame for the event.

boeing

Boeing Wants To Buy Back The Company That Builds The Body Of Its Troubled Max Planes

However, the bolts are only one of several quality difficulties that Spirit AeroSystems has faced in recent years. Fuselages were supplied to Boeing with work remaining on them, resulting in “out-of-sequence” work, which may have contributed to Boeing’s quality difficulties.

In 2023, it used a “non-standard manufacturing process” to attach pieces of the fuselages, halting deliveries of 737 Max jets. Just a month earlier, a Spirit employee informed Boeing that two holes may not have been drilled strictly to Boeing’s specifications, forcing Boeing to repair approximately 50 planes that still needed to be delivered.

SOURCE – (CNN)

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