Silicon Valley Bank SIVB - $270 to $30 in 48 hours

[MichaelB]

Good chance some promising tech doesn’t get funded if VCs are shy, which they now seem to be.

That’s one possibility. Another is the more promising technology will get new funding and while the “iffier” ventures will disappear.

 

[bmcgonig]

That’s one possibility. Another is the more promising technology will get new funding and while the “iffier” ventures will disappear.

Possibly, but the impression I get is that given the massive rise in interest rates the VCs now have a much larger hurdle to jump over to fund a company. Usually they only consider an investment that returns many times the cost of risk free capital. In zero interest days that wasn’t a big hurdle. With 4-5% interest rates that a much tougher proposition. So I think that the triage that you refer to started some time back.

 

[Spock]

I’m of the opinion now that the government or FDIC should backstop all deposits in all banks over 250k.

First that would avoid the contagion that will occur Monday if every small biz is trying to get out of the small banks cos their payroll etc is in those banks. Just the announcement that the backstop is there wouldn’t cost any money and would stop contagion.

Then we need to figure out some way to FDIC insure all deposits. If it’s a deposit in a bank, and it’s not an investment, then insure it. The banks need to pay for this insurance of course and that will be passed on to those keeping those large deposits.

The weird thing is that we have known about this risk forever and seemingly it’s just being ignored, but I don’t see the point in punishing those businesses that allows themselves to be sucked in. It’s not like they were getting any reward for their deposits, just somewhere to park their payroll etc.

I don’t consider this a bailout since bond holders and equity holders will get nothing.

It is a bailout. Somebody has to print the $ to make uninsured depositors whole. At some point, stupidity/greed has to hurt or there is no incentive not to be stupid/greedy. FDIC limits were already doubled with the last crisis and moral hazard of "privatize the profits but socialize the losses" has got to stop. Otherwise its "just print more $ to bandaid this".

Give the regulators time to liquidate the assets and then see how big the hole is. There is already talk of giving uninsured depositors some sort of partial payment early next week. Startups are on a glide-path burning up their savings hoping to IPO before savings = 0. They don't need access to 100% of their funds first thing Monday morning (and some of them are going to implode even if made whole).
I will not be surprised if the Fed comes up with some sort of "TARP"-like special program to (print money and) buy the underwater bonds just to keep them out of the market... but why should the Fed (I don't even say "we the tax payer" any more) pay par vs. market value?
One of the GFC reforms codified "bail-ins" where your uninsured deposits buys you a shiny new stock certificate in the new bank. That concept is creeping into legislation world wide. I don't see TPTB giving up on that clause quickly... but then politically run economies are fickle.

 

[badatmath]

Pardon if this is a stupid question as I don't really understand this but should people be concerned about these other 20 banks per this article? https://www.morningstar.com/news/ma...on-huge-potential-securities-lossesas-was-svb

Asking only because I see Ally on here so often. I don't have an account there.

 

[yhoomajor]

Any bailout of SVB (especially above FDIC insurance limit) will be a slap on the face of average Americans working their butts off for $18/hour.

"SVB was the highest-paying publicly traded bank in 2018, with employees getting an average of $250,683 for that year, according to Bloomberg."

SVB also paid out annual bonuses to its employees on Friday (just minute before they handed keys to FDIC).

https://www.cnbc.com/2023/03/11/sil...s-received-bonuses-hours-before-takeover.html

"The size of the payouts couldn’t be determined, but SVB bonuses range from about $12,000 for associates to $140,000 for managing directors, according to Glassdoor.com."

 

[Spock]

10 bucks says we discover Thiel and his cronies had big short positions in the stock.

It's out in tin-foil hat territory. But one claim is that since the Fed is expected to pivot (lower interest rates) if/when a crisis occurs just go ahead and help trigger the next crisis.

 

[yhoomajor]

Only fair solution here would be to liquidate the holdings of SVB and then distribute the settlement (whatever amount that is) proportionally to its depositors.

And then close this Bank. A rich bank for rich crooks in Silicon Valley.

 

[audreyh1]

Possibly, but the impression I get is that given the massive rise in interest rates the VCs now have a much larger hurdle to jump over to fund a company. Usually they only consider an investment that returns many times the cost of risk free capital. In zero interest days that wasn’t a big hurdle. With 4-5% interest rates that a much tougher proposition. So I think that the triage that you refer to started some time back.

Well that may help ease some of the labor tightness.

 

[bmcgonig]

It is a bailout. Somebody has to print the $ to make uninsured depositors whole. At some point, stupidity/greed has to hurt or there is no incentive not to be stupid/greedy. FDIC limits were already doubled with the last crisis and moral hazard of "privatize the profits but socialize the losses" has got to stop. Otherwise its "just print more $ to bandaid this".

Give the regulators time to liquidate the assets and then see how big the hole is. There is already talk of giving uninsured depositors some sort of partial payment early next week. Startups are on a glide-path burning up their savings hoping to IPO before savings = 0. They don't need access to 100% of their funds first thing Monday morning (and some of them are going to implode even if made whole).
I will not be surprised if the Fed comes up with some sort of "TARP"-like special program to (print money and) buy the underwater bonds just to keep them out of the market... but why should the Fed (I don't even say "we the tax payer" any more) pay par vs. market value?
One of the GFC reforms codified "bail-ins" where your uninsured deposits buys you a shiny new stock certificate in the new bank. That concept is creeping into legislation world wide. I don't see TPTB giving up on that clause quickly... but then politically run economies are fickle.

Yes, TARP is exactly what I have in mind. Look forward to it.

Edit to add: TARP was profitable.

https://money.cnn.com/2014/12/19/news/companies/government-bailouts-end/index.html

 

[Car-Guy]

Any bailout of SVB (especially above FDIC insurance limit) will be a slap on the face of average Americans working their butts off for $18/hour.

Yep, but that is the way it usually works. Good luck finding anyone in charge that "really" cares.

 

[frayne]

10 bucks says we discover Thiel and his cronies had big short positions in the stock.

+1 Somebody is making money during this event and the leader of the rebel alliance is a prime candidate. Just saying.

 

[bobandsherry]

Out of all the banks in the US, JP Morgan is the best managed. I would only start to worry about JP Morgan, when Jamie Dimon retires.

I agree with you there. Problem is each succession plan has fallen apart either people leaving or failing to live up to expectations. No real heir apparent, and no one in the wings that I'd be willing to keep my investment $$ in JPM. I've been unwinding some of my investments in JPM over the past couple years and will continue to unwind unless someone of sufficient caliber steps out of the darkness.

 

[Texas Proud]

JP Morgan reached a $645M settlement with the FDIC and DB for the illegal mortgages.

https://www.reuters.com/article/us-...ith-fdic-to-receive-645-million-idUSKCN10U28M

They acquired all those branches and deposits from WAMU for pennies on the dollar. Out of all the banks in the US, JP Morgan is the best managed. I would only start to worry about JP Morgan, when Jamie Dimon retires.

It was the big payment that I was talking about.... from what I remember most, if not all, of the problem was with WAMU in this $13 BILLION settlement...


I agree it is the best run bank in the US...



https://www.justice.gov/opa/pr/just...rs-secure-record-13-billion-global-settlement

 

[Freedom56]

I don't think the government should bail out SVB or any regional bank that fails. They gamed the system and lifted threshold for oversight imposed by the Dodd-Frank act which in effect repealed the act for banks with $250 billion in assets and lower threshold from the original $50 billion. The repeal in 2018 left only about 12 banks in this country subject to strict oversight and minimum capital ratios. Only 34 banks in 2022 were required to complete their stress testing. SVB was not one of them. The net effect over the coming weeks may be a flight of deposits from these regional banks to the large money center banks. If that happens, the regional banks got the deregulation they asked for. It's a free market and customers are free to choose where to leave their deposits.

On another note, Bloomberg reported that the investment banking arm of SVB is speaking to regulators regarding a management buyout of SVB Financial. They also reported that none of the large money center banks are interested in acquiring the accounts and loan portfolio of SVB thus far.

 

[kgtest]

I keep less than $1000 in my bank account on any given day. Now if Vanguard had a run and collapsed, I would definitely be in OMY territory.

 

[audreyh1]

I got a “ We’re solid, no problems” message email from First Tech FCU CEO today. Maybe they felt compelled since they are based on the west coast and cater to tech companies.

Actually it was more closely linked than that, the first paragraph:

A message from Greg Mitchell: First Tech remains strong and secure

I am writing today in response to the sudden closure of Silicon Valley Bank (“SVB”) and to provide you with an added level of assurance regarding the strength of our credit union and our capacity to preserve and protect your funds at First Tech. We have close friends and associates at SVB, and at firms served by SVB, and we are proud to stand shoulder-to-shoulder in support of them and those SVB customers that may experience a short-term disruption in their banking services.

And they go on to detail their capitalization/reserves.

 

[Freedom56]

Here is another source quoting the Bloomberg wire report regarding SVB Securities Management, exploring ways to buy the firm back from its parent

https://whtc.com/2023/03/11/silicon...arm-explores-buying-firm-back-bloomberg-news/

The Treasury and FDIC will brief California lawmakers on Sunday the 12 th of March at 1:00 PM ET

https://www.axios.com/2023/03/12/treasury-fdic-brief-california-lawmakers-svb



The Fed is holding an emergency meeting on March 13 regarding SVP.

https://www.moneycontrol.com/news/b...gency-meeting-amid-svb-collapse-10235071.html

 

[milford]

I don't think the government should bail out SVB or any regional bank that fails. They gamed the system and lifted threshold for oversight imposed by the Dodd-Frank act which in effect repealed the act for banks with $250 billion in assets and lower threshold from the original $50 billion. The repeal in 2018 left only about 12 banks in this country subject to strict oversight and minimum capital ratios. Only 34 banks in 2022 were required to complete their stress testing. SVB was not one of them. The net effect over the coming weeks may be a flight of deposits from these regional banks to the large money center banks. If that happens, the regional banks got the deregulation they asked for. It's a free market and customers are free to choose where to leave their deposits.

On another note, Bloomberg reported that the investment banking arm of SVB is speaking to regulators regarding a management buyout of SVB Financial. They also reported that none of the large money center banks are interested in acquiring the accounts and loan portfolio of SVB thus far.

+1... a bailout only encourages future recklessness... what needs to be implemented is some type of accountability clawback for the executives who lead the company into the implosion.

 

[luckydude]

+1... a bailout only encourages future recklessness... what needs to be implemented is some type of accountability clawback for the executives who lead the company into the implosion.

SVB is a victim of an unprecedented fast changing macroeconomic environment more than anything else.

The gov't flooded the economy with $ in a bid to save the economy at the onset of Covid. The cheap money fueled a tech boom and a tremendous growth in SVB's deposits. SVB was simply responding to market conditions. They weren't irresponsible with the deposits. They put the deposits in Treasury bonds, which are about the safest financial instruments there is.

Then inflation hit, the Fed raised rates in quick succession, and SVB was stuck with longer-term gov't bonds that declined in value and couldn't be liquidated without losses to meet demands from tech companies that needed their deposits to meet adverse business conditions. Even then, they might have survived with additional outside investments if it weren't for a massive panic bank run by depositors.

This dramatic 2-year swing of lowering interest rate to zero and printing trillions of dollars in 2020 to a rapid rise in interest rates in mid-2022 was really unprecedented historically and engineered by the Fed and the US govt. SVB got caught in a macroeconomic environment to which it had no control. Their only fault---if you want to call it that---is that they catered to tech companies. But that was their niche to begin with, and even then, they survived the dot bomb and the 2008 financial crisis just fine.

They were unlucky but hardly reckless.

 

[pb4uski]

SVB is a victim of an unprecedented fast changing macroeconomic environment more than anything else.




... They were unlucky but hardly reckless.

I totally disagree. SVB is a victim of their own flawed asset-liability management practices... borrowing short and investing long... it's that simple. It was about duration mismatching and interest rate risk, not credit quality. They were both reckless and unlucky.

 

[misanman]

I’m of the opinion now that the government or FDIC should backstop all deposits in all banks over 250k.

I saw a report that some California-based celebrities face losing hundreds of millions of dollars so my guess is that there will be a lot of political pressure to bail out all depositors.

 

[MichaelB]

I totally disagree. SVB is a victim of their own flawed asset-liability management practices... borrowing short and investing long... it's that simple. It was about duration mismatching and interest rate risk, not credit quality. They were both reckless and unlucky.

I agree, and when Chairman Powell calls me to ask if they should bail out the depositors, my answer will be “no”.

 

[marko]

The upcoming week(s) should be interesting for the general market.

How many tangential companies will be affected? How bad the contagion?
Will the FDIC expand the $250k limit?
Will there be a bailout?
Will there be a clawback for the execs who sold their shares recently or got big bonuses?
Is the the beginning of a new, better and effective set of oversights?
Will banks get refocused on banking and less on feel good bullet points?
What will the Dow do at 9:30 Monday?
(Is the $900k home going to make a comeback in Palo Alto)

I tend to be an optimist and view such events (Enron, Madoff, FTX, SVC) as cathartic. Every few years these things pop up and get cleaned out. No fun for the innocent, but it seems to push people back to the basics. "Stay the course, don't get fancy"

 

[marko]

I agree, and when Chairman Powell calls me to ask if they should bail out the depositors, my answer will be “no”.

Please remind him that he still owes me $20 on that bet I won from him!

 

[MichealKnight]

The depositors at SVB - I feel will be made 100% whole in the end. And the execs who pulled out money or sold shares will face zero consequence. It's as sure a bet as 2 and 2 being 4.

In the meantime - other regionals are down -- that possibly don't have profitless businesses and digital currency as mainstay businesses. However - are they losing deposit base due to high rates elsewhere?

Banks like Truist (TFC) - nice business in Southeast. Dividends are now over 5%. Regions Financial, same growing demographics - yielding close to 4%. Not advocating chasing yield - just highlighting that these entities are down significantly.

Any opinions on buying shares in these types of banks at this point?