Sweden’s largest pension fund, Alecta, came under fire this week for investments it made in defunct US regional banks. After breakdown in tech-startup-focus Silicon Valley Bank (SVB) on Friday and the crypto-focus Signature Bank on Sunday—the second and third largest bank failures in American history, respectively—private pension managers for 2.6 million Swedes faced more than $1 billion in losses.
“Obviously with what happened last week we think it’s a big setback for us as an investor,” CEO Magnus Billing SPOKE Bloomberg Tuesday. “And we need to learn from that and take actions based on the lessons learned.”
Alekta started buying shares in Signature Bank and Silicon Valley Bank parent company, SVB Financial, as well as the regional bank First Republic Bank in 2017, and increased their allocation in the following two years. By the end of 2022, Alecta will be the fourth largest shareholder of SVB Financial, the sixth largest of Signature Bank, and the fifth largest shareholder of First Republic Bank—which has seen its stock fall nearly 70% along with other regional banks on Monday.
First Republic made a more than 50% recovery on Tuesday’s publication after a big sell-off on Monday. The company exposed over the weekend it arranged a $70 billion credit facility from JP Morgan and “additional borrowing capacity” from the Federal Reserve, but shares are still down 60% year-to-date. Alecta’s total stake in these three failed or struggling US regional banks totaled 21 billion Swedish Krona ($2.1 billion).
Billing sought to reassure his Swedish clients on Tuesday after a dark start to the week for US banks, noting that Alecta’s investments in three regional banks amounted to only 1% of total capital this.
“From the customer’s point of view, it doesn’t have any material impact. It doesn’t affect the pensions we guarantee to our customers,” he said, calling Sweden’s pension system “very good.”
Sweden’s Financial Supervisory Authority said this week that it also believes the local financial system will not be affected by issues at regional US banks, arguing that it has “significant stability,” The Financial Times reported Tuesday.
Billing said on Tuesday that he “doesn’t expect any value” from his company’s $1.1 billion investment in SVB and Signature Bank, but in a Swedish radio interview on Monday he argued that First Republic is in a more well positioned than its peers.
“An important parameter here is trust in the bank. My judgment is that the trust in First Republic Bank is stronger compared to SVB and Signature Bank. I believe that First Republic will handle it,” he said, according to MarketWatch.
On Tuesday, Billing added that the situation for First Republic Bank was still “very volatile,” and that he had not made any “major decisions.”
Sweden’s financial regulator also summoned Alekta’s executive team to a meeting to discuss its investments in Silicon Valley Bank, Signature Bank, and First Republic Bank this week.
Billing and his team are facing pressure after they sold Sweden’s more conservative banks—including parts of the country’s largest bank, Svenska Handelsbanken—to buy high-flying tech, start-ups , and crypto-focused banks in the US The CEO argued Tuesday that the sale of the Swedish bank was a “separate issue” and explained why Alekta invested first in SVB, Signature, and First Republic.
“What we like about them is their market position. They are positioned when it comes to innovation in the digital space. And the US market, generally speaking, is the depth of that and the size of it,” he said.
Billing went on to say that he was aware of SVB’s problems last week before the bank’s collapse and had discussions with management putting together an action plan to turn things around.
“We think the plan of action that the company has is — they’re transparent about that — and we think it’s well thought out,” he said. “Then last week the company acted not according to the action plan we discussed with them and presented to us and that surprised us. I think that was a big mistake from the company’s side. “
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