Just days after Silicon Valley Bank failed, the CEO of Swedens largest pension fund said the company had made a mistake investing in some U.S. banks. Obviously with whats happened, Alecta CEO Magnus Billing told Bloomberg in March, we think that its a big failure for us as an investor, and we need to learn something from that and take actions based upon the lessons learned. Weeks later, Alectas board agreed with Billing, firing him today with immediate effect. The mistake was, of course, a nearly $2 billion loss on both Silicon Valley Bank and Signature Bank, two of the three largest banking failures in U.S. history. Not only that, but Billing had also invested in First Republic Bank, which itself had a near-death experience.
Alecta, the occupational pension fund, manages about $115 billion in assets, and its looking to shore up investor faith with Billings firing. The losses have seriously damaged confidence in Alectas asset management, the group said in an official statement. The board has now come to the conclusion that Alecta needs new leadership to implement the necessary changes in asset management and restore trust.
Alecta began buying up shares in the three American banks in 2017, and increased its holdings in the following years. By 2022, Alecta was the fourth-largest shareholder of SVBs parent company, sixth largest at Signature, and the fifth largest at First Republic.
The Swedish pension funds board appointed deputy CEO Katarina Thorslund as interim chief until a permanent replacement is appointed.
Banking rout: continued?
Alecta is just the latest financial institution to be impacted by SVBs implosion, which was the second-largest banking failure in history. The failure of the Santa Clara-based bank, prominent in tech and venture capital circles, came after a historic single-day $42 billion bank run. And while the immediate domino effect of SVBs failure impacted other U.S. banks, with First Republic wobbling before regulators took the historic step of backstopping uninsured deposits, it set off a tumult in markets that soon stretched to other parts of the world, including Switzerland.
Days after SVBs fall, Swiss banking giant UBS bought its fellow titan, Credit Suisse, for a knockdown $3 billion after a run on the systemically important banking giant. Credit Suisse had its fair share of issues that investors, regulators and fellow-banks were aware of for years before the SVB episodebut something changed last month.
Experts have wondered about the potential impact of the banking rout lasting for longer. Economist Mohamed El-Erian said economic contagion was possible due to an erosion of trust among consumers, and policymakers may not be able to stop it, while Jamie Dimon recently wrote that he sees the effects lasting for years, in his annual JPMorgan shareholders letter.
Larry Fink, CEO of asset manager BlackRock, compared the SVB crisis to a slow-rolling crisis like the Savings and Loan crisis of the 1980s, although the real extent of damage to the financial markets remains unclear in SVBs case.
We dont know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector (akin to the S&L crisis) with more seizures and shutdowns coming, Fink wrote in a letter to stakeholders last month. Its too early to know how widespread the damage is.
