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

[bmcgonig]

No bailout for SVB.

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

Depends what she means by bailout. There’s no agreed definition.

 

[Freedom56]

Face the Nation on CBS is reporting that tech companies are being told in emails by VC partners to pull money out of regional banks and open accounts and deposit funds at the big four banks.

 

[jldavid47]

Face the Nation on CBS is reporting that tech companies are being told in emails by VC partners to pull money out of regional banks and open accounts and deposit funds at the big four banks.

Just what we need. More bank runs. Just what I would expect from Vulture Capitalists. The administration should declare a bank holiday to prevent this from happening. Most of these banks will be fine unless there is a run on their assets.

 

[luckydude]

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

But that would mean that Powell would have to print another $20 out of thin air and that might cause the inflation to go up.

 

[Freedom56]

Depends what she means by bailout. There’s no agreed definition.

I can't see a scenario where account holders who exceeded the FDIC limits will be made whole. That did not happen in 2008/2009. I can't see treasury infusing capital and making SVB a viable bank again. The assets SVB are holding are safe treasuries but they never counted on the duration risk in a rising rate environment. While most individual investors would never lock 1.79% for 10 years or 1.25% for 30 years, it's pretty tragic that a Bank would lock tens of billions in low coupon debt without interest rate hedges at those long durations. These were not exactly low wage employees making those decisions.

 

[Tetto]

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

Well I’m not a boomer so doesn’t apply to me. And I’m quite certain we’ll be in debt way after I’m gone. Socialist utopia and all. *

 

[luckydude]

I disagree. If you have raised $10, $30 or $50 million then you sould be able to afford a decent CFO who would know enought to assess the risk. To me this goes to prove that brokered money market funds are safer than bank deposits in excess of the FDIC limit. With the former, at least there are rules that result in prudent asset/liability matching via the various don't break the buck rules. As we now know and should have known, deposits in excess of the FDIC limit are at risk. Besides, there are products out there where you have you money deposited at one bank but the underlying deposits are spread out to stay within the FDIC limits.

NFW we taxpayers should be guaranteeing deposits greater than $250k or bailing out depsositors who ignored the coaverage limits.

Now all of that said, I think that many of the uninsured depositors will be made whole or close through the runoff of SVB's assets after then insured depositors are paid.

I would argue that the $250k FDIC limit should be raised or at least be indexed to inflation. $250k in 2011 (when the limit was permanently raised) is not the same as $250k today.

 

[jldavid47]

I can't see a scenario where account holders who exceeded the FDIC limits will be made whole.

Me either but stranger things have happened. In order for that to happen Congress would have to change the law that governs the FDIC which is not at all likely to happen. The FDIC cannot simply decide to hand out money over the $250K limit.

 

[Freedom56]

Janet Yellen on Face the Nation.

 

[bmcgonig]

Just what we need. More bank runs. Just what I would expect from Vulture Capitalists. The administration should declare a bank holiday to prevent this from happening. Most of these banks will be fine unless there is a run on their assets.

They’re right. What else can they do. No one in their right mind will leave uninsured money with regionals now unless the FDIC number is raised Sunday night for all except SVB.

There were quite a few VC’s on Wednesday or Thursday that said they were not going to take their money out. Then there were the Peter Thiels who did. Who looks smart now? And I have no love for Thiel.

 

[Quattro73]

No bank including big 4 could stand a 25% runoff in 2 days. Nor is there need to have that.

This is now vulture’s circling. They are most like shorting like crazy.

 

[Marc]

Now they are telling about a form of bailout; i.e., make depositors whole. Report is that will support the other small and regional banks. A lot of horse crap to me. If no buyer steps forward it means that there is nothing worthwhile to buy and SVB should follow in the footsteps of Enron and others that have conducted gross fiscal mismanagement.

Marc

 

[marko]

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?

So...........I read this as a "buying opportunity" coming in the next three or six weeks. Wait for the smoke to clear in the next two weeks and then go shopping?

I did quite well three years ago this month during the Covid dip.

 

[Toocold]

I can't see a scenario where account holders who exceeded the FDIC limits will be made whole. That did not happen in 2008/2009. I can't see treasury infusing capital and making SVB a viable bank again. The assets SVB are holding are safe treasuries but they never counted on the duration risk in a rising rate environment. While most individual investors would never lock 1.79% for 10 years or 1.25% for 30 years, it's pretty tragic that a Bank would lock tens of billions in low coupon debt without interest rate hedges at those long durations. These were not exactly low wage employees making those decisions.

This is what I don't even understand. Even I knew that I wanted to shorten my duration, because I knew that interest rates were rising, so I kept half my fixed income bucket in money market funds, despite very low interest rates.

It seems to be that they got greedy and/or they needed to keep up their projected net interest income so they purchased longer term bonds.

The treasury and fed should look at the balance sheet of the individual banks and see how much interest rate risks they hold, before they raise interest rates more.

 

[disneysteve]

I would argue that the $250k FDIC limit should be raised or at least be indexed to inflation. $250k in 2011 (when the limit was permanently raised) is not the same as $250k today.

I was wondering that. I thought it’s been 250K for a long time. The government makes this same mistake over and over and over. They set a number and fail to add inflation indexing. So 10 or 15 or 20 years later, we’re still only allowed to put $2,000 in our IRAs as was the case for many years.

 

[Toocold]

So...........I read this as a "buying opportunity" coming in the next three or six weeks. Wait for the smoke to clear in the next two weeks and then go shopping?

I did quite well three years ago this month during the Covid dip.

SBNY's put option for $65 strike price (current $70) now cost $17 for a 3 month option. It's going to be bloody on Monday.

I would not try to catch this falling knife quite yet. We should expect the big banks to go up, once the fear slowly goes away from the moving deposits.

 

[Toocold]

There is an easy, cumbersome fix. The fed cuts interest rates to 0 %. Do a risk assessment of bonds in all the banks balance sheet and identify those who are weak. Let them re-caliber for a rising interest rate environment and then slowly raise them again.

 

[Marc]

There is an easy, cumbersome fix. The fed cuts interest rates to 0 %. Do a risk assessment of bonds in all the banks balance sheet and identify those who are weak. Let them re-caliber for a rising interest rate environment and then slowly raise them again.

This is in jest, right?

 

[Toocold]

This is in jest, right?

Yes, correct.

I do think though that they should do a risk assessment on the balance sheet, very similar to 2008. This will at least given them visibility on how big the systematic risk there may be.

 

[Gumby]

If I were looking to short, I might look at Ally. As of their December 31, 2022 10K (https://d18rn0p25nwr6d.cloudfront.net/CIK-0000040729/f4eb4064-f7ec-4ee1-962f-fe4b69d8a58d.pdf), their unrealized losses on "available for sale" securities appear to be about 20% of their Tier 1 capital (compare the AFS delta 2021 to 2022 on page 117 to Tier 1 capital on page 101. (- $4 billion/$19.2 billion)

That is worse than SIVB, where unrealized AFS losses were about 10% of Tier 1 capital (https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d7-9459-41d7-9e3d-2c468971b386.pdf) (compare Footnote 3 on page 49 to Tier 1 capital on p.84 (-$1.7 billion/$17.5 billion)

The depositor profile between the two may be sufficiently different that it is not a problem, but it could drive the market on Monday.

Or I could be all wet in my interpretation of the numbers.

 

[Montecfo]

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

Same.

I know there are folks here attempting to suggest in effect that "all regional banks" have the same risk as SVB. But this in fact is not the case.

In fact, SVB is unique in that no other bank caters so completely to young tech companies.

That business model does not work when the public market is chilled and the Fed raises interest rates at unprecedented pace.

But the Fed's tactics have created new risks for banks, without a doubt.

 

[Chuckanut]

There is an easy, cumbersome fix. The fed cuts interest rates to 0 %. Do a risk assessment of bonds in all the banks balance sheet and identify those who are weak. Let them re-caliber for a rising interest rate environment and then slowly raise them again.

IOW, pass the cost of this bank’s foolishness to the savers like most of us here. I think that’s called enabling.

 

[Toocold]

If I were looking to short, I might look at Ally. As of their December 31, 2022 10K (https://d18rn0p25nwr6d.cloudfront.net/CIK-0000040729/f4eb4064-f7ec-4ee1-962f-fe4b69d8a58d.pdf), their unrealized losses on "available for sale" securities appear to be about 25% of their Tier 1 capital (compare the AFS delta 2021 to 2022 on page 117 to Tier 1 capital on page 101. (- $4 billion/$19.2 billion)

That is worse than SIVB, where unrealized AFS losses were about 10% of Tier 1 capital (https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d7-9459-41d7-9e3d-2c468971b386.pdf) (compare Footnote 3 on page 49 to Tier 1 capital on p.84 (-$1.7 billion/$17.5 billion)

The depositor profile between the two may be sufficiently different that it is not a problem, but it could drive the market on Monday.

Or I could be all wet in my interpretation of the numbers.

This is similar logic to the linked article, and Ally is flagged as one of the banks with a high risk.

https://www.marketwatch.com/story/2...otential-securities-lossesas-was-svb-c4bbcafa

I keep track of signature bank because it's the last gateway for crypto ramping, so the client base is more similar to silvergate, although it's more diversified.

We shall see how these fare.

 

[FIREd_2015]

Me either but stranger things have happened. In order for that to happen Congress would have to change the law that governs the FDIC which is not at all likely to happen. The FDIC cannot simply decide to hand out money over the $250K limit.

"...Although the FDIC insures bank deposits up to $250,000, a provision in federal banking law may give them the authority to protect the uninsured deposits as well if they conclude that failing to do so would pose a systemic risk to the broader financial system, the people said. In that event, uninsured deposits could be backstopped by an insurance fund, paid into regularly by U.S. banks..."

https://www.washingtonpost.com/us-policy/2023/03/12/silicon-valley-bank-deposits/

 

[Car-Guy]

I would argue that the $250k FDIC limit should be raised or at least be indexed to inflation. $250k in 2011 (when the limit was permanently raised) is not the same as $250k today.

Me either but stranger things have happened. In order for that to happen Congress would have to change the law that governs the FDIC which is not at all likely to happen. The FDIC cannot simply decide to hand out money over the $250K limit.

I guess if you need a lot of cash flow that could be a problem but for many of "us" it's easy (a few mouse clicks) to get 2 or 3 million or more in FDIC coverage at one place by buying brokered CD's through a firm like Schwab or Fidelity. Just keep your spending cash (under 250) in a FDIC checking account and everything else in laddered CD's (all under 250) at a bunch of different banks. Depends on how liquid you need to be.