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

[Montecfo]

Interest rate risk sensitivity analysis and stress tests as part of a gap analysis is pretty basic to banking. Gap analysis, subtracting liabilities from assets and then testing how interest rate movements could make a bank illiquid is pretty basic risk management analysis. The other point is that, the Fed communicated their intention to hike interest rates. So there were no real surprises. It's pretty astonishing that the CEO/CFO didn't attempt to raise funding through a secure bond sale using the 10 year notes as collateral. It's not like they would be the only bank going to the debt market.

Their Risk Officer apparently was focused on other tasks.

 

[luckydude]

WSJ has an interesting article on SVB's CEO and CFO:

https://www.wsj.com/articles/greg-b...vbs-quick-rise-and-even-quicker-fall-2ff25176

The article is behind a paywall.

I came across an interesting tidbit in the article.

From Wall Street Journal:

"But SVB kept betting that rates were about to go down. Last year, SVB terminated or let expire rate hedges on more than $14 billion of securities throughout the year, according to its year-end financial report. The bank reported virtually no interest-rate hedges on its massive bond portfolio at the end of 2022. By the middle of last year, SVB said in a presentation to investors it was “shifting focus to managing downrate sensitivity,” or, effectively, protecting itself if rates fall again."

For a bank, this verges on criminal negligence.

 

[JoeWras]

WSJ has an interesting article on SVB's CEO and CFO:

https://www.wsj.com/articles/greg-b...vbs-quick-rise-and-even-quicker-fall-2ff25176

The article is behind a paywall.

Using the free link feature, here's the free link to the article: https://www.wsj.com/articles/greg-b...bgqydvw8jcp&reflink=desktopwebshare_permalink

What I find interesting is that these guys were 55 or 50. I'm 60 and remember and high interest rates of the past, at the end of my high school and through college. "Prime Rate increases" were a staple of the news in the early 80s.

Perhaps those 5 to 10 years makes all the difference in their memories, as they would have been just short of high school as inflation settled. They never saw rising rates like this as adults.

 

[marko]

What I find interesting is that these guys were 55 or 50. I'm 60 and remember and high interest rates of the past, at the end of my high school and through college. "Prime Rate increases" were a staple of the news in the early 80s.

Perhaps those 5 to 10 years makes all the difference in their memories, as they would have been just short of high school as inflation settled. They never saw rising rates like this as adults.

I'd expect that professionals making several million a year to manage large banks would rely on a broader base of historical and current information rather than personal memories of a few decades ago.

Just because you weren't alive during the Great Depression or WW 1 or Viet Nam is no excuse for ignoring its lessons.

 

[Gumby]

They didn't drop the hedges because they didn't know. They did it because hedges cost money and therefore decrease their profits. In the end, it's always the greed that kills you.

 

[Another Reader]

If you have an insured account in your name and an insured account in the name of your trust, with you as trustee, is each account insured up to $250,000?

 

[jazz4cash]

But then how would they indulge in average salary of more than $250,000 per employee (in 2018), highest in nation. Not including Bonuses that ranged from 140k - 20k yearly?

Where do those figures come from? They seem very high but averages can be very misleading.

 

[Spock]

For insured deposits there is NO wait... the new bank steps in the shoes of the old bank and if you had not read about the closing you would never know it happened...


I would bet that you could go to an ATM over the weekend and draw money as there is a limit to how much you can take out and it is not $250K..

Not even close.
They were cut off mid-day Friday and did not get access until Monday morning when the bridge bank opened.
The doors were shuttered with people waiting outside.

 

[audreyh1]

If you have an insured account in your name and an insured account in the name of your trust, with you as trustee, is each account insured up to $250,000?

Yes, I believe that is correct. The trust is a separate entity.

 

[Winemaker]

Yes and Rep. Barney Frank (of the Dodd-Frank bill) gave his blessing to this change. And Barney Frank is on the board of directors of Silicon Valley Bank. Oops!

And Signature Bank as well.

 

[MichaelB]

<mod note> Let’s not ruin the discussion by bringing politics into it

 

[JoeWras]

I'd expect that professionals making several million a year to manage large banks would rely on a broader base of historical and current information rather than personal memories of a few decades ago.

Just because you weren't alive during the Great Depression or WW 1 or Viet Nam is no excuse for ignoring its lessons.

I completely agree!

My point is that when it is in your own collective memory, it has more weight.

But, yeah, highly paid executives with accounting and MBA credentials should, uh, have a solid perspective.

 

[Gumby]

And Signature Bank as well.

To be accurate, I believe he was only on the board of Signature Bank of New York, not Silicon Valley Bank. It is irrelevant in any event.

 

[RetiredAt55.5]

WSJ has an interesting article on SVB's CEO and CFO:

https://www.wsj.com/articles/greg-b...vbs-quick-rise-and-even-quicker-fall-2ff25176

The article is behind a paywall.

I came across an interesting tidbit in the article.

From Wall Street Journal:

"But SVB kept betting that rates were about to go down. Last year, SVB terminated or let expire rate hedges on more than $14 billion of securities throughout the year, according to its year-end financial report. The bank reported virtually no interest-rate hedges on its massive bond portfolio at the end of 2022. By the middle of last year, SVB said in a presentation to investors it was “shifting focus to managing downrate sensitivity,” or, effectively, protecting itself if rates fall again."

For a bank, this verges on criminal negligence.

From the same article:

Deposits leapt 86% in 2021 as the company’s stock surged 75%, after rising 54% in 2020.

So, that deposit growth growth happened in 2021, and then this happens to 2022 -

The bank was without a risk officer for the majority of last year, after Laura Izurieta stepped down from the role in April and her successor wasn’t announced until January. Ms. Izurieta’s departure was first disclosed by the bank last week.

 

[audreyh1]

The bank was without a risk officer for much of 2022 and they didn’t disclose that until last week. Oops! No interim acting risk officer? Someone decided not to pay for the hedges anymore. They probably we a lot more expensive.

Well whatever. Water under the bridge.

 

[NW-Bound]

I woke up late today when market trading was already on the way. Logged into my brokerage account to see my shares of Bunge (BG) jumped up 14% from $91 at close yesterday to $104. What gives?

A quick look on the Web showed that this soybean distributor will replace SIVB in the S&P 500. Buy, buy, buy!

The good news is that I have 200 shares of BG. The bad news is that I already sold 1 April contract at $97.5. So, 1 lot is considered sold and my gain is limited. Dang!

 

[Another Reader]

Transferred all but the last few dollars out of Ally this morning. If I'm going to take the risk of bank failure, I want compensation. Maybe one of those 5 percent plus CDs...

 

[MuirWannabe]

Transferred all but the last few dollars out of Ally this morning. If I'm going to take the risk of bank failure, I want compensation. Maybe one of those 5 percent plus CDs...

Well, I’m probably foolish, but I just did the opposite and transferred $100K into the 11 month no penalty CD at Ally.

 

[yhoomajor]

Where do those figures come from? They seem very high but averages can be very misleading.

From this CNBC article (which has been mentioned in this thread many times)

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

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

 

[Chuckanut]

From this CNBC article (which has been mentioned in this thread many times)




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

I am reminded of this story. Five factory workers are in a bar having a few beers. There average net worth is 43,000 dollars. Bill Gates walks in and joins them. Their average net worth is now 20 billion dollars.

 

[marko]

From this CNBC article (which has been mentioned in this thread many times)

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

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

A good pay, but not exorbitant IMO for that area.

 

[Another Reader]

A good pay, but not exorbitant IMO for that area.

They have offices across the country. Those markets generally have lower salaries.

 

[audreyh1]

Transferred all but the last few dollars out of Ally this morning. If I'm going to take the risk of bank failure, I want compensation. Maybe one of those 5 percent plus CDs...

Well, I’m probably foolish, but I just did the opposite and transferred $100K into the 11 month no penalty CD at Ally.

I’m not worried either. I bought a third no penalty CD yesterday.

I have plenty of liquid investments at other locations if needed but I don’t expect any disruptions.

 

[RetiredAt55.5]

Well, I’m probably foolish, but I just did the opposite and transferred $100K into the 11 month no penalty CD at Ally.

I also moved $11K into the NP CD. I'd move more in, but my cash is tied up short term in other bank offers/deals so I don't want to touch those.

I figure it's FDIC insured, so it's safe. If the government doesn't honor it's FDIC insurance promises, then the economy is in deep yogurt and I have much bigger problems than getting to my Ally money.

 

[MichaelB]

Here’s an excellent blog post (here) from “The Grumpy Economist”, aka John Cochrane of the Hoover Institute at Stanford. He’s an outstanding economist, very sharp, and doesn’t mince words.

Here he comments on a paper assessing the interest rate exposure of the entire US banking sector. They put the overall “mark to market” loss at $2T, and the bottom 10% of banks had greater unrealized losses than SVB.

The blogpost is short and easy reading and highly recommended.