“Shark Tank” / ABC
According to Kevin O’Leary, weak regional banks should be allowed to fail.
“Shark Tank” investors blow small banks run by “idiot” managers.
He said that digital banking has made the regional bank system mostly obsolete.
Weak regional banks should be allowed to fail, and the regional bank system is a relic that has essentially been made obsolete by the advent of digital services, according to “Shark Tank” star Kevin O’Leary.
“Let those run by fools go to zero,” O’Leary said in an interview with Bloomberg TV on Monday. “That’s the best thing about the markets, it finds bad managers, kills them, and fires them. We have to let that happen here. There are so many stupid managers in banking.”
The renowned investor pointed to a spate of banking failures over the past few months, most recently the collapse of First Republic Bank in early May.
Those failures are the result of poor management and “upside-down” balance sheets at regional banks, O’Leary said, predicting that about 15% of existing regional banks will soon go under for similar reasons.
He added that with the rise of online banking the regional banking system has also become practically obsolete, estimating that 97-98% of all banking is done online. Previously, O’Leary predicted that the collapse of a Silicon Valley bank in early March was the beginning of the end for the regional ones, and that smaller banks would consolidate into a handful of large firms within the next three or four years.
“The reasons regional banks that were important 60 or a hundred years ago because of the differentiation of the economy in different parts of the country don’t matter anymore because we have digital banking,” O’Leary said.
O’Leary said regulators are unlikely to cap the FDIC’s $250,000 limit, or guarantee deposits on shares of failed banks. For their part, they have already told their companies to siphon off cash from smaller lenders.
“I said this to all of my portfolio companies, give me one reason why you would keep any cash invested in your company in a regional bank,” he said. “Why do I have to put any cash at risk? Get it out of there, transfer it to one of the major money center banks. Otherwise, we won’t lend you any more, or buy any more of your equity.”
Regional bank jitters are coming in waves, with fresh fears of PacWest and Western Alliance hitting the market last week after First Republic was taken over and sold to JPMorgan. PacWest shares have declined 42% in the past month, while Western Alliance shares have declined 15%.
Read the original article on Business Insider