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

[Car-Guy]

I find it difficult to believe that the depositors of SIVB did not know the FDIC limit was $250k. If you want to take a chance on depositing more than that, for whatever reason, then do it with your own money, not mine. I see no upside in encouraging people to disregard risk in their pursuit of riches by baling them out with taxpayer money when things go bad.

All true, IMO....

 

[MichaelB]

The charts in that link really tell a story.
And here is why SVB will bailed out:

SVB was also borrowing a large amount from the Federal Home Loan Banks (FHLBs), government-sponsored member-owned banks that offer liquidity through secured loans. In fact, as of Q3 SVB alone was responsible for 20% of FHLB San Francisco's loans outstanding".

I wonder if the feds money printer runs on diesel or has been upgraded to rocket fuel.

The FHLB lends to smaller banks, but the loans are 100% collateralized and there is no doubt FHLB has already collected.

 

[jurgs01]

Combine what I just posted with long dated treasuries being considered safe a year or so ago. If an institution backstopped customer funds with treasuries, they have taken a significant price haircut as interest rates rose.

Now, consider that those banks can't compete with the yield of a short term treasury. What does that do for inflows and outflows?

So, when they have to sell treasuries at market value to cover withdrawls, they suddenly are forced to mark to market, and they go from well capitalized to insolvent overnight.

This gets even worse with their CMBS and other backing.

It was pretty easy to see coming.

 

[MichaelB]

I think I disagree with this.

The equity and debt holders of the bank should get crushed. They are investors in a business that was mis-managed. Too bad, so sad.

But I have a lot of sympathy for depositors and that includes the venture firms.

You're a venture firm with maybe $10-50M you raised in the last round. You're off working on your idea. Hiring people, running R&D, building sales, trying to build out marketing, etc. You're busy and far more likely that not you're a decent person pouring a lot of blood, sweat and tears into something.

Or you're also a young/smallish public company in much the same situation.

You should not also need to be a bank analyst or have to hire an expensive CFO to do your own liabilty matching. Or try to park $30M in 120 different accounts to get FDIC protection?

You should be able to count on a bank being ... a properly run bank.

And as shareholders in public companies, it's ludicrous that we are exposed to losses because we can't bring ourselves to properly run banks.

Should someone bail depositors out? That's a hard one for me. Maybe we should as a societal penalty for mis-managing basic tenants of the banking system. The societal version of what happens to the shareholders in the bank.

What needs to happen is reform where FDIC covers 100% of deposits with commensurate insurance rate increases & required bank risk behaviors to warrant the insurance. It is insane that we have to go through the silliness of parking money all over the place just to manage FDIC caps.

And all banks need to be able to survive a stress test because while they may not be systemically important to the nation, they are certainly "too big to fail" for their depositors.

I agree with much of your view. You wrote “ Should someone bail depositors out? That's a hard one for me.”. It’s a hard one for me as well.

 

[Rianne]

I'm confused about what determines a bank vs a credit union, a fund company as VG or Fidelity. My bold below makes me wonder how our investments are protected by mismanagement of an investment or financial institution.

https://www.fdic.gov/regulations/re... is,in different account ownership categories.

"The FDIC covers
Checking accounts
Negotiable Order of Withdrawal (NOW) accounts
Savings accounts
Money Market Deposit Accounts (MMDAs)
Time deposits such as certificates of deposit (CDs)
Cashier's checks, money orders, and other official items issued by a bank

The FDIC does not cover
Stock investments
Bond investments
Mutual funds
Life insurance policies
Annuities
Municipal securities
Safe deposit boxes or their contents
U.S. Treasury bills, bonds or notes

Depositors do not need to apply for FDIC insurance. Coverage is automatic whenever a deposit account is opened at an FDIC-insured bank or financial institution. If you are interested in FDIC deposit insurance coverage, simply make sure you are placing your funds in a deposit product at the bank"

 

[Chuckanut]

Anybody could look at historical interest rates and see that they were abnormally low. Even I, a non financial type, realized that well over a year ago when I sold my long and medium term bond funds. Good grief! Some banks in Europe were charging negative interest to savers.

Current interest rates are now about normal for my life time. Perhaps these banks need more grey haired guys and gals who can look farther than a decade.

Blame the Fed. Blame retired folks who are sick of earning 0.6% interest and losing ground every year to inflation. Blame anybody except those who are running the bank. No way.

 

[Chuckanut]

Capitalism and free enterprise include the freedom to lose and lose big.

 

[Freedom56]

No bailout for SVB.

https://apnews.com/article/silicon-...sits-failure-94f2185742981daf337c4691bbb9ec1e

 

[misanman]

Should someone bail depositors out?

I would rephrase this to "Should we bail depositors out?"

 

[MichaelB]

Why has no financial group stepped up to buy the assets and assume the liabilities of Silicon Valley Bank? This would be the typical approach by FDIC and regulators. Their assets were high quality US Treasuries, so the only real issue was the uncapitalized mark to market losses. This was not a solvency issue, it was a liquidity mismatch.

Why aren’t the Venture Capitalists offering to recapitalize, provide bridge financing, or help in some other way? They are calling for a bailout, yet they also took $45B out of the bank on Thursday, which caused the collapse.

Before the capital flight on Thursday SVB assets were worth around 90% of purchase value, so the bank could have been assumed.

Before concluding a bailout is warranted, two important question should be answered. Why did businesses have so much on deposit at SVB, and should they have been aware of the excessive risk?

It is ironic that some of the startup projects underway were for “Decentralized Finance”, which is an effort to create a new financial system outside of our current regulatory framework, and these same founders and investors are now calling for a bailout.

 

[pb4uski]

Since the "Golden Period" thread started, I, for the life of me, was trying to figure out why all of a sudden, these big banks are offering so many CDs and bonds. I see why now, they're shoring up their capital base to make up for the losses on their HTM bond portfolios. It wasn't making any sense with these depositors getting 0.2% interest on their deposits, and then paying up to 5% on CDs.

I think that you are misunderstanding things... it is demand deposits (savings and checking accounts) that did SVB in, not them issuing CDs or bonds. It was bonds that they bought with depositor money that has a lot of interest rate risk and went down in value as the Fed increased rates.

 

[JoeWras]

Current interest rates are now about normal for my life time. Perhaps these banks need more grey haired guys and gals who can look farther than a decade.

Valley culture.

 

[bobandsherry]

Why has no financial group stepped up to buy the assets and assume the liabilities of Silicon Valley Bank? This would be the typical approach by FDIC and regulators. Their assets were high quality US Treasuries, so the only real issue was the uncapitalized mark to market losses. This was not a solvency issue, it was a liquidity mismatch.

FWIW, management buyout has been rumoured.

https://www.reuters.com/business/fi...plores-buying-firm-back-bloomberg-2023-03-12/

 

[bobandsherry]

Current interest rates are now about normal for my life time. Perhaps these banks need more grey haired guys and gals who can look farther than a decade.

Nah, "boomers" don't know anything. Just ask those Gen-Z'ers. Lol

 

[pb4uski]

No bailout for SVB.

https://apnews.com/article/silicon-...sits-failure-94f2185742981daf337c4691bbb9ec1e

Good. That is exactly what I recommended to her when she called me yesterday. [emoji846]

 

[Tetto]

Nah, "boomers" don't know anything. Just ask those Gen-Z'ers. Lol

Preach it! I hear it everyday from my Gen Z employees- I’m too old to understand! Yet they know how to use things, but have zero understanding why it works or was developed!

 

[Spock]

Why has no financial group stepped up to buy the assets and assume the liabilities of Silicon Valley Bank? This would be the typical approach by FDIC and regulators. Their assets were high quality US Treasuries, so the only real issue was the uncapitalized mark to market losses. This was not a solvency issue, it was a liquidity mismatch.

Why aren’t the Venture Capitalists offering to recapitalize, provide bridge financing, or help in some other way? They are calling for a bailout, yet they also took $45B out of the bank on Thursday, which caused the collapse.

Before the capital flight on Thursday SVB assets were worth around 90% of purchase value, so the bank could have been assumed.

Before concluding a bailout is warranted, two important question should be answered. Why did businesses have so much on deposit at SVB, and should they have been aware of the excessive risk?

It is ironic that some of the startup projects underway were for “Decentralized Finance”, which is an effort to create a new financial system outside of our current regulatory framework, and these same founders and investors are now calling for a bailout.

Nobody wants the loan portfolio. Thats why those accounts were at a boutique bank in the first place.
If anything SVB didn't get shutdown fast enough. One exec was talking about a similar "sell to a good bank" scenario and using examples of $10B withdrawn. But $42B was withdrawn. What's left of the high quality assets (treasuries) are what the FDIC is going to use to pay off depositors. After that the "assets" a buyer would be getting is money owed by startups, the majority of which are going to go bust eventually.

 

[yhoomajor]

It's a shame how corrupt our Capitalistic system has become:

3500 Rich CEOs are appealing (aka demanding) to US Government to save the SVB and backstop funds or else many jobs will be lost.

Cruelty of this naked corrupt capitalism is that these CEOs have enough wealth collectively to backstop deposits at SVB. And even hire any employees that may get impacted. If they really believe in the product of affected startups (most don't). Or buy the startup if they think their vaporware is worth investing in. No.. they want Joe the schmo to bail out rich VCs so that those VCs keep investing in these CEOs' products.

"https://www.msn.com/en-us/money/companies/tech-execs-race-to-save-startups-from-extinction-after-svb-collapse/ar-AA18w9dB"

"By late Saturday, more than 3,500 CEOs and founders representing some 220,000 workers had signed a petition started by Y Combinator appealing directly to U.S. Treasury Secretary Janet Yellen and others to backstop depositors, many of them small businesses who are at risk of failing to pay staff in the next 30 days"

 

[Spock]

A very short stroll through FB this morning implies that tomorrow/next week is going to be a $h!+ show. Everybody and their dog is moving their money from "little" bank A (SVB was the 15th? largest bank) to big bank B. Sounds benign but that is a run on the little banks. SVB is just the fuse.

Who's placing bets on another Black Monday and a banking holiday by Weds/Thurs in celebration of St. Patricks Day?

 

[bobandsherry]

3500 Rich CEOs are appealing (aka demanding) to US Government to save the SVB and backstop funds or else many jobs will be lost.

That's got to have Powell, and the rest of the "employment level is too high" crowd smiling.

 

[MichaelB]

Good. That is exactly what I recommended to her when she called me yesterday. [emoji846]

Good job!

Nobody wants the loan portfolio. Thats why those accounts were at a boutique bank in the first place.
If anything SVB didn't get shutdown fast enough. One exec was talking about a similar "sell to a good bank" scenario and using examples of $10B withdrawn. But $42B was withdrawn. What's left of the high quality assets (treasuries) are what the FDIC is going to use to pay off depositors. After that the "assets" a buyer would be getting is money owed by startups, the majority of which are going to go bust eventually.

If depositors were there because they were getting services and financing options not available elsewhere, there is less reason to bail them out.

 

[underwrite]

Preach it! I hear it everyday from my Gen Z employees- I’m too old to understand! Yet they know how to use things, but have zero understanding why it works or was developed!

Say the baby boomers that have gotten the country into 30 trillion dollars in debt. Current and future generations thank you.

 

[Aerides]

Why did businesses have so much on deposit at SVB, and should they have been aware of the excessive risk?

From what I've been reading, this was in part coersion, and cache - VC's would encourage their start ups to put $ in SVB, and start ups and other businesses liked to say they banked there with the cool kids. There isn't much of a loan portfolio, relative to assets, as other banks, because these start ups are flush with VC cash and don't do loans.

Read on twitter from a banking journo:

Over the last two weeks, Silicon Valley Bank executives sold millions worth of their shares.

CEO sold 11% of his shares
CFO sold 32% of his shares
CMO sold 28% of her shares
General Counsel sold 19% of his shares​

This might get a lot more interesting...

 

[audreyh1]

A very short stroll through FB this morning implies that tomorrow/next week is going to be a $h!+ show. Everybody and their dog is moving their money from "little" bank A (SVB was the 15th? largest bank) to big bank B. Sounds benign but that is a run on the little banks. SVB is just the fuse.

Who's placing bets on another Black Monday and a banking holiday by Weds/Thurs in celebration of St. Patricks Day?

Facebook?

 

[11522914]

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.

+100

I was going to respond but you said it much better than I could.