The bank survived the Dotcom Bust. But this bust is far bigger because the Free-Money bubble was far bigger. FDIC may not have a loss on this deal.
By Wolf Richter for WOLF STREET.
Silicon Valley Bank, a California state-chartered bank that was uniquely exposed to the massive all-encompassing startup bubble during the Free Money era – a bubble that is now imploding spectacularly amid what is called a mass extinction event among startups – was shut down and taken over Friday morning by the California Department of Financial Protection and Innovation (DFPI). In its press release, the regulator cited “inadequate liquidity and insolvency.”
The DFPI appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC announced that it had created the “Deposit Insurance National Bank of Santa Clara (DINB)” and that the FDIC, as receiver, “immediately transferred to the DINB all insured deposits of Silicon Valley Bank” to protect insured depositors. Depositors will have access to their insured deposits on Monday, March 13.
The FDIC, as receiver, said:
- “The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023.
- “The DINB will maintain Silicon Valley Bank’s normal business hours.
- “Banking activities will resume no later than Monday, March 13, including on-line banking and other services.
- “Silicon Valley Bank’s official checks will continue to clear.
- “The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition.
- ‘Loan customers should continue to make their payments as usual.”
Insured depositors: “All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023,” the FDIC said. They will not lose a dime.
Uninsured depositors: “The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors,” the FDIC said and provided a phone number for this folks to call. It looks like they will get at least a portion of their funds.
FDIC is unlikely to lose money, that’s what it looks like from this statement as the available assets, after they’re sold by the FDIC, will be sufficient to pay for all insured deposits, other liabilities, and at least a portion of the uninsured deposits. So it looks like the FDIC will not incur a loss.
Shareholders got bailed in and face a total loss. They’re the ones who are “bailed in” automatically when the FDIC takes over. Other investors may have a partial loss.
Chaos at the end. The fact that the FDIC took over the bank during the day — rather than Friday evening, which is the normal procedure — shows just how fast-moving and chaotic this situation, including a massive run on the bank, had become.
Silicon Valley Bank had 17 branches in California and Massachusetts. As of December 31, it had $209 billion in assets and $175 billion in deposits.
Its difficulties were becoming clear last year as the startup and crypto bubble, to which it is so heavily exposed, were already in full implosion mode.
In July 2022, I wrote an article, The Startup and Venture-Capital Barometer Plunges: Silicon Valley Bank Today v. Dotcom Bust. The bank survived the Dotcom Bust. But this current bust is much bigger because the Free-Money bubble was much bigger, and the amounts were much bigger, and Silicon Valley Bank was much more heavily exposed to it. RIP.
This collapse occurred after the desperate efforts to raise $2.25 billion in new equity capital and billions of dollars in liquidity [which I discussed in detail yesterday] caused its shares to collapse on Thursday during the day, and they continued to collapse after hours, and they continued to collapse before regular trading this morning, until trading was halted – and trading remains halted at the moment.
The collapse of the shares scuttled the capital raise. Which reinforced the lesson: A bank has to raise capital early, not when it is already under apparent stress.
The deposit outflow started early 2022 when startup companies that were burning massive amounts of cash didn’t receive new funding, as the entire bubble around startups, IPOs and SPACs, imploded.
When a startup company with an account at Silicon Valley Bank got $10 million or $100 million or $500 million in new funding, the cash went into the company’s bank account at Silicon Valley Bank, to then get withdrawn and burned off in increments. When VCs pulled back from funding these startups, the cash-inflow into the deposit accounts dried up, while the cash-outflow continued, draining deposits from the bank.
The bank then had to sell assets and borrow money to fund those withdrawals. But turns out, the bonds it could sell to raise the cash had fallen in market value due to the rising yields, and when it sold those $21 billion in bonds, disclosed yesterday, it lost $1.8 billion, and it would have to sell more bonds and lose money to raise the cash to fund the run on its banks, and those losses would eat away its capital, and it would become insolvent.
There were reports recently that VC funds exhorted their portfolio companies to yank out their deposits from the bank while they still could, since those deposits are far larger than the FDIC insurance limits of $250,000. And there were reports that some of the startups were not able to withdraw their funds.
What followed was a proper run on the bank. But since regulators deemed the bank “insolvent” (it burned through its capital and doesn’t have enough assets to cover its liabilities, such as deposits), regulators shut it down, rather than providing short-term liquidity to overcome a mere run on the bank (by itself a liquidity problem).
Silicon Valley Bank is the first FDIC-insured bank to fail since October 2020, when the FDIC took over Almena State Bank, in Almena, Kansas.
This is how a bank collapse is supposed to be handled. The FDIC stepped in early enough before the situation deteriorated so much that the costs for the FDIC would begin to balloon.
Strictly for your amusement.
For your amusement, here is what the shares of SVB Financial, which owns Silicon Valley Bank, might look like if trading resumes, with the share price of around $1, maybe:
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andy
Mar 8, 2023 at 1:37 am
Inversion between yields on 2-year and 10-year treasuries is largest since 1981. Cue market crash.
The markets are taking this little event today in stride:
Dow 31,920.79 -334.07 -1.04%
S&P 500 3,865.58 -52.74 -1.35%
Nasdaq 11,140.59 -197.76 -1.74%
VIX 28.45 5.84 25.83%
Gold 1,867.80 33.20 1.81%
Oil 76.30 0.58 0.77%
They expect a weekend bailout announcement like many times before, thus positioning for a face ripping rally.
It is all up to Powell now to discipline the kids and make them pay for their own poor choices, or let them one last time to drink and drug themselves to death (and take everyone else down with them).
A retail account holder with $700,000 in SVB should be able to withdraw $250,000 on Monday.
They may have to take a haircut on remaining $450,000. When can we get an estimate of this haircut? 50%? 80%? 20%?
I am thinking that many people in San Francisco would be holding way more cash than $250,000. Can we get an estimate of number of accounts and average deposit, medium deposit, percentile above $250,000 etc during time of takeover?
How popular was SVBs retail banking business?
The haircut is not going to be huge. It would reflect at the maximum the amount that the FDIC collects from the asset sales minus the amount it has to pay out to insured depositors and secured creditors.
The bank had some capital, but not enough. So if $170 billion are uninsured, and the shortfall between the proceeds from asset sales and liabilities is $17 billion, that would mean roughly a 10% haircut for uninsured depositors. So I think the range is somewhere between 0% haircut and 20% haircut.
The irony is that since this happened, bond prices JUMPED (yields plunged today), and so for now the shortfall is going to be smaller.
Please remain calm, people. I have this all under control. We can always switch to Bitcoin if necessary. I have heard Bitcoin is a good way to make money. I was also considering adding an extra zero to everything. By my calculations that would make everyone 10x richer, so no one would have to worry about that pesky inflation. Psshht!
one never puts over $250k in 1 bank
see simple
Leo: Unless you just deposited the proceeds of a RE sale or lottery win, why would anyone have more than $250K in cash at this bank? If they are smart enough to have this much money they will have it in a brokerage account. You don’t keep that kind of money in a near zero interest bank account. I don’t think ordinary customers will suffer from this bank failure.
Thanks J-Pow.
We are already facing the consequences of your actions.
We just can’t wait for more!
/s
(and take everyone else down with them).
That is problem with centralisation, comes with Central banking which introduce moral hazard on the large scale.
Thanks Wolf. 90% is relieving.
Ed C,
“If they are smart enough to have this much money they will have it in a brokerage account. You don’t keep that kind of money in a near zero interest bank account.”
Many folks would be big on cash, way above FDIC insurance limits, because, everything else was going down for about a year (cash did beat bonds, stocks, real estate).
I was wondering why yields were plunging today… flight to safety perhaps? Gold also caught a bid.
In Q4, 2.7% of the deposits at SVB were in accounts with less than $250K. Very little retail business.
Ed C said: “If they are smart enough to have this much money they will have it in a brokerage account.”
=============================
how secure is money beyond $250,000 in a brokerage account as compared to a bank account?
“It is all up to Powell now….”
I saw the dog and pony grilling of Yellen last night. In addition to the usual anti-Biden “woke “bashing, a lot of hints came out about Powell stopping his “country killing stupidity” (my words). She just tap danced her way through it all without giving them any usable quote, but the GOP lady from Staten Island area (big casino denizen hangout for those not quite wealthy enough to fly home to the Hamptons area after “work” yet) really got down to it and got the “Fed is completely independent” line.
I guess I am just noting that the pressure IS on Powell, and this was just what the peasants are allowed to see, besides it’s usual PR function.
The pressure won’t get any less, that is for sure.
Re; The banks and the weekend bailout. (PS, good articles, even for the Econ challenged/Econ hating, like me)
I remember when Jamie Dimon picked up Bear Sterns for less than the price of it’s NYC building 15 min before the Asian markets opened and was considered a hero for it.
There were lot’s of people who got very richer being “heroes” (Buffett, etc) back then.
Well…stride-ish…
Or more like “skittish”….
Vix had pretty good jump. I have puts that are up 25-35% since Wednesday. Just the start I think.
Wells Fargo customers are seeing negative balances in their accounts. Probably a nothing burger.
Here’s the little message on the landing page for my WFB business account:
“If you see incorrect balances or missing transactions, this may be due to a technical issue and we apologize. Your accounts continue to be secure and we’re working quickly on a resolution.”
It’s been there since early this morning – just a coincidence (one hopes).
“Wells Fargo customers are seeing negative balances in their accounts.”
LOL. A computer glitch that impacted some customers. What you picked up is a computer glitch that was turned into an internet fantasy. People need to get a grip.
You remember the computer glitch that nearly shut down Southwest Airlines? That was a big one.
Like Bear Stearns?
You do know what happened later, don’t you?
Curious to know if SVB passed Fed stress tests for banks.
Leo,
to answer your question: I deleted some of your comments because you were abusing my site to spread BS. Go do that on Twitter.
You are assuming long-term bondholders are smart. They are not. They are relying on a Fed put, just like everybody else.
The real economy needs a 6-10% long bond rate right now, to adequately cover default risk.
You are over-reacting. SIVB is a special situation, poorly run bank. Don’t go fueling a run on banks. Stay calm. If you’ve got a ton of cash in any one bank, over the FDIC limit, then go ahead and panic.
Many folks would be big on cash, way above FDIC insurance limits, because, everything else was going down (bonds, stocks, real estate).
I bet these folks will be panicking.
Worse is that in broad contagion FDIC can only cover <3% of all insured deposits. So no one will be safe.
I don’t know where you’re getting that 3% number from, but I suspect that’s assuming all banks in the country have zero assets and FDIC must pay out the $250,000 max to *every* insured account out of its own pocket. True, in that scenario, the FDIC probably doesn’t have enough for more than 3%.
But that’s a ridiculous scenario. Even SV bank has lots of assets. Even sold in a fire sale, they will yield lots of cash to pay out depositors. And the FDIC will use those proceeds to first pay out the $250,000 insured amount. Assuming the asset sales are enough to cover that, the FDIC will not have to put in a penny. Every other creditor (including depositors with >$250k) will then be given a portion of whatever is left of the asset sales. Whether that portion is 10%, 50%, or 100% of their deposit amount will depend on what prices the assets fetch. But it doesn’t really affect the FDIC.
The truth is, the FDIC very rarely puts in its own money. Banks have lots of accounts with >$250k in them, not to mention unsecured creditors like bondholders. The chances that SV Bank’s asset sales, even in a forced, fire sale, aren’t enough to cover that $250k FDIC guarantee, is basically nil. As long as that standard is met, from the FDIC POV, everything else is just gravy.
Word of advice (and I mean this sincerely): given the image of bank failures that people have in their mind, there will be lots of people fear mongering about the consequences because it makes great clickbait. Don’t fall for it. Find reliable sources of information (like Wolf! :-) and disregard the panic and hysteria that people are trying to drum up for ratings / views / talking their own book.
Lune, if broad contagion was impossible, why did we bailout 3000 banks in 2008? Or have we forgotten that already?
All I am saying is 2008 repeat is no longer simple due to high inflation.
Its a hypothetical question about a low probability (>0%) scenario. Assuming it hits us, what are we looking at?
Look, the mortgage crisis involved HUGE numbers. Here we’re talking about a bank that has been overexposed to one of the riskiest parts of the economy: startups. Like crypto-banks exposure to the crypto scam. The numbers are small, compared to mortgages.
The bigger problem will be commercial real estate mortgages, especially in the office sector to which some smaller and regional banks are heavily exposed. And some of them will collapse. But a big part of those loans are with investors via CMBS and with pension funds and insurers.
So the economy is going to work through those risky sectors if you let it. Thanks to the financialization of everything, most of the losses will go to investors and funds, not banks.
You’re abusing my site to spread BS.
Sorry, I was misinterpreting your comment. I agree a recession will be coming. My point is that long-bond holders are assuming the Fed will drastically reduce interest rates as a response. I think that’s a big assumption.
A lot of hot air can come out of asset prices without any major economic damage.
At this point, we need lower asset prices to maintain the economy.
I agree that the Fed bankers’ cartel cannot reduce interest rates while averate inflation experienced by Americans keeps running at higher levels than the interest paid. I am amazed, however, that (assuming reports are true) this was a legitimate, honestly run bank that merely got crushed by the Fed cartel’s maintaining of low interest rates for so long and not by dollar swaps or real estate or auto loan or other gambles. Next, I will now believe that unicorns exist. LOL.
CORRECTION: new reports are they apparently, insanely invested tens of billions in mortgage backed securities at the time of the highest, real estate bubble and at below 2% per year for ten years, which was way below the real rate of inflation. What fools!? Incompetence or what? Cui bono?
Today’s update:
The 2Y yield is down over 50bps in the last two days, the biggest 2-day drop since Lehman (Sept 2008)
If SVB could just waited till today to sell those bonds after prices spiked like this, LOL. It might not have taken a loss at all at these prices, and it might still be around to talk about it.
Why does every comment not have a reply
Flea,
Comments only go four layers deep (nesting). If I allowed a fifth layer, the column gets very thin on mobile devices and would be hard to read. A sixth layer would look like this on mobile:
Comments
only go four
layers deep
(nesting).
If I allowe
d a fifth l
ayer, the c
olumn gets
very thin
on mobile
devices
I don’t care how many layers you have, or how it looks on mobile. Just let me have the last word on all the threads and I will be happy. :P
Flea,
Oh, and you can still reply. Just click on the next reply button above and add the screen name of the commenter you’re addressing.
See, you can even have the last word that way 😍
The Fed giveth, and the Fed taketh away. I have a feeling that there will not be endless stimulus this time to right the ship. Capital controls are inbound. The FDIC is gonna have a full plate.
Good solid article that explains the scenario in a factual manner. It also caused me to automatically reassess if the current game, sorry, “economic” plan from which I have been operating, is an accurate, updated opinion of the future.
I went through all the stages associated with being a witness to economic loss. Fear that all the innovation that the “tech” firms were working on will be lost to humanity for all time. Followed by remorse, wondering why would the bank’s “customers” turn on them and bankrupt them in a 24 hour period. Pictures of the great cats of Africa killing and eating their prey came to mind.
Then, it occurred to me that the crap they were working on was already obsolete. Pull the plug and walk away with full value enhanced by QE. Let the FDIC bury the dead. Hedge fund stuff.
Apparently, the honor among thieves has been upheld by this deal. Another layer of the QE bubble onion is exposed as risky. Since one of the principle operational objectives of QE was to extinguish risk ……
Risk is still is a foreign concept to the current QE economy.
Risk always seems to arrive like a hurricane.
I was also emotionally engaged with the Fed’s plight. Then I thought, being the financial industry lap dog they seem to be they will be disinclined to displease the concentrated wealth that are actually calling the shots.
Another head shot like a 50 bpt in the FFR at the next meeting of the FOMC on March 21-22, will earn the FOMC a trip to the woodshed.
After their meeting, the Fed’s Dali lama will emerge from behind the shimmering curtain and announce what the clerk at the super market told me what they were going to do. A 25 bp hike in the FFR with know promise of interest rate repression for the foreseeable future.
The ” markets ” will stage a choreographed version of wild trading before settling on the agreed upon price.
I believe that America has the best workforce in the world. Potentially speaking.
Family level wages and job security goes a long way in harnessing the magic of American ingenuity.
The only requirement to allow corporate rule is submission.
So …. what I’m really trying to draw attention too is the economic challenges the world economy is facing as we transition from the fad back to the tried and true.
FDR’s agenda was an honest path forged in dire times when survival was in the hands of your neighbor as much as it was in your own.
Concentrated wealth is not defensible in America who revolted against the English Aristocracy including a ludicrous monarch with real power to order the British army into battle.
The saga of the closure of SVB is more symbolic of the corruption underlying the foundation than it is the valiance.
Apparently they parked $91 Billion into mortgage bonds and US Treasuries. The Fed rate raises had a bigger impact than we thought.
SVB had zero loans from the Federal Home Loan Bank of San Francisco in 2021 from what I read, and as of EOY they had $15 billion FHLB required three times collateral, so no idea if they take the hit or the SVB investors.
Silvergate had $4.3 billion in FHLB loans, so the amounts are adding up and it could get interesting this weekend if more banks fail as linked dominoes often fall in unison.
That said, the FDIC seems on top of the situation at the moment. Like Wolf, very surprised they did not wait until after markets closed today, seriously fast failure with potential fallout that needed to be instantly contained to avoid panic.
And we haven’t even hit terminal rate yet and banks are failing, this time is different it would seem. I’m guessing 0.50 FFR increase is off the table due somewhat to the banking fears???
Good call. It was always likely that the Fed would stick with .25 increases from now on, this probably clinches it. They don’t want to spook the markets with an unexpectedly large increase. We’ll know in 11 days’ time.
Almost like Fed policy impacts are lagged. Hmmm.
Fed has already overtightened vs what’s required. Long end of curve reflects this.
We’ll see if any other banks wobble.
Honestly, I don’t think there is much long term difference between 25 basis and 50 basis. That was the range everyone was predicting for a while, and while there will be some volatility depending which the fed goes with, doesn’t matter because fed is not stopping/pausing until inflation slows down.
“If one wanted to create a confluence of cross-currents that make the job of policymakers more difficult, one might choose the combination of a red-hot economy, robust job gains, elevated inflation and an estimated $620 billion in potentially unrealized losses inside the banking system”. from RSM.
Rad hor jobs market ,is because baby boomers retired. And next generation doesn’t know what work is ,they tell employers what they will do .Not working overtime,not working Saturday,cowardly employers need to grow a set of nuts . But can’t replace worthless crap our government created ,because of 2 working parents and kids playing video games . Don’t know what work is .
Damn
It’s because employers stopped training their workers, fired all the older ones when they reached 50, and outsourced all their knowledge to Asia.
It’s their fault and the politicians who encouraged this.
CH – very well-said.
may we all find a better day.
I say Gen-Z is on the mark as far as employment goes. The saw their Millennial older siblings and younger unless and aunts get screwed by their Boomer bosses expecting I them to work ridiculous hours and numerous extra positions for a pittance of a raise while the CD suite executives took all the credit for their work and cashed out with stock buybacks. Back in th the day there were such things as unions which represented these workers and worked to put the kibosh on executive greed.
Lots of executives are now millennials and younger, especially in the San Francisco Bay Area. Boomers have gotten kicked out years ago (age discrimination). You better start blaming the millennials that now run the show.
agree with CH,, with one exception:
”Paid Political PUPPETS” AKA politicians did not ”encourage” ,,, they were paid billions of USDs and tons of drugs to absolutely do everything possible to enable transfer of manufacturing and secrets of engineering, etc., etc.
STILL happening far damn shore.
And STILL with the import of the drugs already!!!
Just because you were abused in your youth doesn’t mean everyone else should be as well. Sit down boomer or take your abuse elsewhere.
The losses extend way beyond banking as zero interest rates forced investors further and further out on the curve. or, into equities.
Many pension funds are getting, or are going to get, walloped directly in the case of stock ownership in SVB.
Was looking at the stock holdings of the Swiss National Bank.
They look like a US mutual fund.
The State of California and FDIC are working at all deliberate speed to clean up this mess on Aisle 666 and nobody but the big depositors in excess of FDIC liability parameters as well as 100% of the stockholders will suffer any losses as SVB gets fully flushed down the toilet into the sewer!
I banked at 2 failures in the 2008 time frame. I didn’t lose a dime. One was an internet bank that paid a high rate of interest. The other was taking big risks in mortgages, so the CEO could pretend to be a big shot. My checks still say “washington mutual”, although chase cashes them.
I had lunch with a friend the week after FDIC padlocked the washington mutual offices. He said he bought the stock the day before they went under. Thought the stock was a bargain. Not a lucky guy.
“I had lunch with a friend the week after FDIC padlocked the washington mutual offices. He said he bought the stock the day before they went under.”
There were a lot of stock traders doing the same thing this morning pre-market on SIVB, snapping up ‘cheap’ shares and ready to make a bundle when the SP jumped back up. They got a rude awakening very quickly…
The occasional joy of investing in a company that is paying dividends when it has no real profits.
PONZI
I was laid off at Washington Mutual 2 ½ years before their failure. Biggest in US history, around $300 Billion. I worked in the Internal Audit Department, at the time, reviewing subprime loan files for adherence to reasonable policy. Some big New York sharks convinced the CEO, Kerry Killinger, to soup up his subprime loan conduit to supply loans for subprime MBS. They eliminated my department, didn’t want audits of their poorly underwritten subprime loans. It was crazy. They discussed subprime loans and particularly the residual portion of the issuance, which is most risky, in the annual report and said something like “don’t worry we have foreign buyers for these securities.” And you know what the foreign buyers read the annual report and stopped buying. Oops. I knew enough to load up on WM puts and made a significant contribution to my retirement. No one went to jail. Life goes on.
Thanks for sharing your real life story. It was movie material.
MAFIA
Isn’t that insider trading?
You and I were in a similar boat. I was part of IT/Engineering from 2001-2006 at Wamu. When they gathered us all up and told us to sit quietly in Benaroya Hall to get the announcement that we were about to receive our severance packages was a fun day.
I have many stories about how crazy that environment was leading up to Wamu’s demise.
@Jezza
Not if you’re no longer inside.
As a stock holder of SVB do we loose all of our investment?
Yes
the Jenga tower loses one more block…
I agree. Nice to see things are starting bend and then break. We need more of this and for someone to remind Elizabeth Warren the market should sort out these issues rather than letting Congress meddle in keeping bubbles from bursting.
MW: SVB stock remains permanently halted as FDIC takes over bank, Fed keeps watch and analysts take note…
What happen if you have your money in UST in a brokerage account in big bank like chase if something like what happened to SVB happen to Chase?
Unlikely to happen but money would be the least of my concerns then.
@Sam: From what I have read on ETrade website, all the assets in a customer’s account belong to the customer – and not the brokerage. The brokerage has to keep customer assets separate from their own.
Nope, the securities are in the name of the brokerage. It’s called being owned in “street name”. It’s called custodial risk. It’s “off balance sheet” (and yes, segregated) but that’s what enables customers to trade securities through the broker.
If the securities were in the customer’s name, the broker couldn’t sell it for you.
To avoid custodial risk, you need to deal directly with the issuer or hold the securities yourself. Examples are Treasury Direct for UST and paper stock certificates.
This is from ETrade website, hope Wolf will excuse the link since it is for information purposes only:
https://us.etrade.com/l/f/asset-protection
========================================
Customer Protection Rule
FOR ALL E*TRADE SECURITIES BROKERAGE ACCOUNTS
US Securities and Exchange Commission (SEC)
CUSTOMER PROTECTION RULE
All fully paid customer securities, including stocks and bonds, are 100% owned by the customer. These securities are required to be kept segregated from E*TRADE Securities’ own assets,3 and cannot be used by E*TRADE Securities to satisfy its own obligations.
In theory, nothing should happen to your treasuries in a brokerage account. However, if there are any brokerage shenanigans such as rehypothecation, multiple entries for the same asset, etc., all bets are off. I always wonder about that….
Treasuries bought at a brokerage are yours. If the brokerage goes belly-up, and it loses its records, you can reconstruct your holdings using your trade data: date, amount, CUSIP etc. You show this info to Treasury and they will know you own it. Importantly, keep screenshots of all trades you make.
I haven’t been doing that. I guess I better start.
Ask my grandma what happened in depression,bank president ,broke into safety deposit box es .STOLD assets never to be seen again, fools and there money are soon departed
You should be safe with chase. The fed would have to bail out a bank that size. However, it’s hard to know what would happen to investment assets. It’s almost certain that they are lending them.
UST investments should be done at a treasury direct account. You can’t go wrong with that.
We had that 2011 when MF Global failed while having mixed customer assets with their own. SIPC guarantees the first 500k. Above that, you have to hope to get paid through liquidation. Customers assets are first in line though and in the MF Global case all customers got their money.
JPMorganChase is a Systemically Important Financial Institution. The FDIC will never let this happen to them.
Dimon says Systematic Cronies Importance Financial Institution
The return of FDIC FRYDAYS will be the big new thing in 2023!!!
FRYDAYS – I like that one…
Ok, of this…..let’s go surfing…
Thalia St?
Good! Let this entire corrupt, vile system collapse!!! I have NOTHING to lose! And so many people deserve to lose so much. Working folks should be happy this is happening. The wealthy have been living off low interest rate insanity for too long. Sitting home in their underwear trading stocks, living off overinflated assets while the rest of us “punch a clock” and actually work for a living. This should have happened in 2008!!! And people wonder why I rent. Why my debt is paid off. Why I have a few acres of land and a room full of ammo, guns, food, water, gold and silver.
Given your sentiments, will you still think the same way when the economy crashes into a depression?
That’s what your comments imply.
No thanks for THE depression of all times as is clearly implicated by the asset(s) bubble of all times you and I agree has been happening AF:
How some ever, having said that, I would really like to see some parity with the rent per wages I had: Paid $50permonth for a really nice studio apt across the street from CAL ’69-70;
That was 10 hours of my pay doing handyman work, less than half a neighbor’s profit from selling a key – that also took him close to that time…
Same apt was $2500permonth,,, best handyman was $50 highly skilled, down to $20 general labor,,, so not even close.
Fair is Fair,,, give the youngins who want to work their way at least a chance of doing so.
I think Rick’s final sentence answers your question.
AF, I see a lot of comment similar to Rick’s here and on other websites. They really don’t understand what they are wishing for. After listening to the stories of my grandfathers about life through the ‘30s, I hope we never see that again. Almost no one today understands the true implications of the word “hard times.”
We have a growing working population living under bridges, behind bushes, in squatted buildings and in their cars who understand it full well.
…GR – with you. i’m always more interested in the answers when I ask: “…and then what? And then what? (etc.)…”. (have yet to hear any response that combines me that the Millennium or similar will then be at hand. There’s no avoiding the distasteful realization that we can sincerely decide to compromise, cooperate, grind it out to an improved general situation, or not and certainly be subject to those forces that do…).
may we all find a better day.
…auto-c strikes again *convinces. Apologies.
may we all find a better day.
“people wonder why I rent… Why I have a few acres of land”
How do these two go together? Why not live on your land instead of paying to rent?
This brings back the nightmare of 2008…
Will Powell and Yellen stand shoulder-to-shoulder and announce a mass bailout? Will Powell tell congress that “the tax payer” will pay for it all, just like Paulson did?
Will the apathetic, ignorant masses say once again “It don’t bother me since I don’t make enough to pay taxes?”
What will those of us who still pay taxes do, just quit in disdain? Perhaps the best way is to deny them our labor, hence our taxes.
Yes. They will need $5 Trilion this time. To restore confidence, you know.
Fear, uncertainty and doubt (often shortened to FUD) is a propaganda tactic used in sales, marketing, public relations, politics, polling and cults. Budgets to get passed, debt ceilings to increase and wars to fund
One crisis to the next
“What will those of us who still pay taxes do, just quit in disdain?”
Well, that might solve the inflation problem at least 😂
I hope you are right, but:
1. Mass quitting means fewer people will produce goods and services, thus inflation will rise.
2. Currency will fall, hence increasing inflation.
Or mass quitting means many people have less money to bid up the cost of goods and services, thereby crushing inflation. Kind of a chicken and egg thing.
There may be individual exceptions, but I view mass quitting as a hollow threat. Most people, understandably, do not want to adjust their lifestyle to reflect a significant reduction in income.
Late last year, public sentiment polling showed that 68% of Americans (a number that had grown) already thought Silicon Valley had too much power and influence, and anecdotally I think? we’ve all seen at least a lack of respect for the tech sector throughout the country. If this is thought of as the silicon valley crash in any way, any bailouts will be extremely unpopular and I’d imagine would stoke a bigger reaction than last time… But just in general the country’s psyche is in a different place than it was in the 2008 crash… I have to believe massive bailouts of banks, businesses and the wealthy without help for everyday Americans would have major political consequences. But who knows.
I think it could be more like the nightmare of 1873…
Doesn’t the end of the graph violate a key WS dictum?
Darned, it sure does.
More common sense than anything else. When FDIC takes over a bank, they usually orchestrates another (new) bank to come in and take over the assets, while FDIC guarantees the new bank against losses. The shareholders of the defunct bank (SIVB) are left with $0…..
And any deposit over $250k goes to zero as well.
That maybe why SVB (ticker: SVB) President and CEO Greg Becker sold 12,451 shares on Feb. 27 for $3.6 million, an average price of $287.42 each. That day he also acquired the same number of shares using stock options priced at $105.18 each, according to a form he filed with the Securities and Exchange Commission.
“And any deposit over $250k goes to zero as well.”
BS. Read the article. This is what the FDIC is going to do. From the article:
“The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
1. This advance dividend = cash payment of a portion of the deposit.
2. There are already companies offering to buy those “receivership certificates” so they can be turned into cash.
I came down in the comments to say the same thing. As another one of my favorite expressions goes: this is the exception that proves the rule!
Where were the bank examiners?
They will close the barn door after the horses have bolted, as usual. Look at the history of past crises, not just GFC.
Yet I also know that I will still read (over and over) how regulation prevents contagion. (Yes, I know there is no contagion, yet.)
I’m wondering if some of the contagion will arrive when Janet Yellen approves the sale of hundreds of billions in Treasuries after the debt ceiling debate is finished this year. Lots of cheap money drawn away from smaller banks into T-Bills, etc. which could be a serious problem for regionals who don’t have deep reserves, I would imagine.
What happens to employees who own SVB stock? Are they just wiped out?
It turned so quickly that I wonder if the FDIC didn’t slam the door in the faces of some horses.. even ghost horses..
‘Contained’ 2.0? Treasury Sec Yellen Says Banking System Is “Resilient”
“”Remember when Ben Bernanke told the world that the subprime crisis – that would eventually collapse the global financial system – was “contained”?
And don’t forget, Janet Yellen exclaimed proudly that there would never be another financial crisis “in our lifetimes” in 2017, only to see the repo crisis and the reaction to COVID lockdown policies prompt the biggest response by The Fed ever.””
“resilient” means you take the hit and you take the loss and you get bloodied and you get back up and brush off the dust and lick off the blood and struggle on. A banking system that is resilient will muddle through even as some individual banks collapse.
That’s different from “contained.”
“Resilient” reminds me of the ad slogan for Timex watches when I was a kid: “it takes a licking and keeps on ticking.”
Police were called after ‘about a dozen’ financiers, including former Lyft executive Dor Levi, showed up outside the building on Park Avenue as investors scrambled to get their money out in the biggest collapse since the Great Recession. Levi had been told by an SVB banker that he had to come to the branch and get a cashier’s check to move his funds. Oh well.
‘Fears about unrealized losses in banks’ bond portfolios, catalyzed by sharp falls in US banks’ share prices yesterday, presents a buying opportunity for European banks in our view,’ Credit Suisse analysts wrote in a note.
I bought Washington Mutual and Wachovia for pennies on the dollar. Still lost 100% somehow.
I lost my entire investment in Bank of New England in January 1991. Eight insiders had just bought the stock. It was the last bank I invested in.
“My Treasury colleagues and I joined representatives of the [FDIC] and the Federal Reserve Board in a conference room on a Sunday morning. We came to understand that either the FDIC would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning – the first such run since 1933. We chose the first option, without dissent.”
— Now-Federal Reserve Chair Jerome Powell, speaking about the Bank of New England failure in a 2013 speech about “too big to fail” banks
But I can’t help but imagine that as the nature of this bank failure circulates, it will prompt those who are settling for .3% yields in their deposit accounts to move into CDs or, more likely, short-term treasuries. And those with deposits in excess of the FDIC insurance limit will move that money into Treasuries as well. In spite of the likelihood of the FDIC making all depositors whole, there will be those who won’t leave well enough alone. As was pointed out in comments, that is already underway, hence the drop in the T-bill yields so quickly.
Will this hammer the regionals and community banks?
And unless this simmers down quickly, I imagine that the Fed will not go with a .5% rate hike, rather, do .25%. If yields rise more, that’ll just speed up the move into Treasuries. They don’t want a banking collapse on top of trying to wring out inflation.
Ah…BNE, was an odd story. I knew the lead accountant for the parent bank. He successfully sued the FEDS, the bank was not inso!vent. He recovered hundreds of millions for depositors.
I don’t get why all these guys were putting all of their cash with one institution.
I mean, I’m just a guy with an emergency fund and it’s spread over a few institutions, all with check writing/wire options. It’s super easy, costs nothing, and provides diversification.
Are the accountants in silicon valley just lazy?
And this is not a FDIC issue. You put some of the reserves in Treasury mmas, enough to do payroll on laddered tbills direct. All this is super easy. Taxes maybe a tiny bit more complicated but that is their job.
For a few years I’ve used ROKU as the streaming equipment for my two older Panasonic plasma TVs. With a 500 Mbps fibre-optic feed coming directly into my home, and a WiFi set-up, ROKU works great.
When I saw a list of the corporations with large amounts of cash deposited at Silicon Valley Bank, I noticed ROKU had “approximately $487 million of its $1.9 billion (26%)” with SVB.
Not a ROKU stockholder, but I do wonder about how the company is run??? They must be doing something right to be sitting on $1.9 B. However, they might want to look at where the remaining $1.4 B cash is being held, eh?
Nate – thank you.
may we all find a better day.
Credit Suisse had another all time low last night (2.45)
The not yet revived Credit Suisse First Boston Corpse might have to be returned to the grave.
Not a bank anyone should trust.
Yeah, I put that in there as kind of a dark joke–they really said it though.
Signature Bank next…. (SBNY)
Another Crypto disaster…
Larry McDonald is predicting that the Fed will have to cut rates 100 points by December because of SVB. This sounds like BS, but the treasury yields are down big today, which is confusing me.
Is there any truth to Larry’s predictions?
BTW I’m honestly not endorsing Larry’s views or trying to spread BS, just genuinely too economically ignorant to know if he’s wrong and how these factors relate.
(Wolf – if my comment is unproductive I won’t be offended if it’s deleted).
FED won’t cut rates because of an FDIC takeover. Inflation is still the target. 10Yr yield will fluctuate because of market input, people flee to safety, driving down yield. But if you look at short term yields – unchanged… 10Yr rate will resume its climb once panic recedes…
Odd for a 50 bp FFR increase for March dropped from 80% to around 56% at one point today, and some of delta that was due to the jobs numbers released today.
Yet Fed can’t start cutting as he would lose all credibility and create mass panic.
People have been predicting rate cuts ever since the first rate hike in March 2022 because of yada-yada-yada.
The FDIC did its job. That’s all that happened.
“People have been predicting rate cuts ever since the first rate hike in March 2022 because of yada-yada-yada.”
Finally, a satisfactory explanation.
just listened to Chris Whalen. He torched Powell. says this is consequence of QE for too long and then fast runup to 5%.. Its S&L all ever again. He says banks are going to drop like flies unless Fed gets in front of it this weekend.
Regs encourage banks to hold government paper and then Powell tanked the values by 30% by raising rates too fast because Fed made policy error.
When Chris Whalen talks, people should listen. But I’m really surprised that he would throw out a threat like that.
Maybe he’s bought a lot of puts on some of the deposit-bulked-up banks and wants to join the billionaire’s club.
He and his clients — and the broader investment community he speaks for — got caught on the wrong side of their big bets, that’s all. Now he’s begging for their own bailout. They’re not worried about banks. They’re worried about their positions in stocks and bonds. They’re big into financials. And stocks and bonds are headed down under rate hikes and QT, and they want this to stop. I’m so sick of their shit. To hell with them.
I am sure they will next explain how bailing them out helps (a) the poors and (b) real Americans, depending on the audience.
Hate losers begging for more dollars to put into the slots.
Whalen has reasonable analysis of banking, but his knee jerk reaction connecting a poorly run bank, to the Fed inflation war is totally misguided. Banks that aren’t being run well, need to fail, along with a tsunami of overvalued over-leveraged zombie corporations that are living in fantasy land!
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell testified to the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
The Fed broadcast loud and clear for months that they were embarking on substantial interest rate raises. Well before they actually started. If a Bank CEO was so incompetent that they failed to listen to that, shorten the maturity of their bond holdings, and prepare for a high interest rate environment, then those are the guys Whalen should be torching.
Apparently Silicon Valley Bank bought a bunch of 10 year Treasuries *last year*, when the Fed was announcing their target of 5-6%. What’s more, their clients, i.e. startups generally fundraise every 2-3 years. That means they deposit a bunch of cash (from a fundraising round) and then drain that over 2-3 years before their next round. What the hell was the bank doing buying 10 year treasuries when the lifecycle of their deposit/withdrawal activities is in the 2-3 year range?
These are the type of idiotic moves that Bank CEOs are supposed to not make. The Fed gave *everyone* tons of warning before starting. It’s not Powell’s fault if people didn’t listen.
Heck, people like Whalen aren’t listening *now*. So-called experts are bloviating that this means the Fed is going to pivot right now, despite the Fed clearly saying for more than a year now that their main goal is taming inflation, which is still raging. When the Fed raises by another 0.5% this month, after making it clear that they are driven by only 2 numbers: inflation and employment — even going so far as to say they’re willing to tolerate a recession and job loss to get inflation under control — will Whalen still blame the Fed and not those poor, poor, innocent Bank CEOs who don’t understand English and can’t comprehend the words coming out of Powell’s mouth?
IMHO after watching RE for 7 decades or so, Stonks for 3 on and 4 off, and now Wolf’s Wonder plus commentariat wisdom for a couple years, Lune,
YOU NAILED IT…
”Socialism for the Rich” is and has been the motto of the paid puppets parading as politicians pretending to represent the interests of their voters while padding their pockets and following orders from their 0.01 owners.
Long term illiquid assets don’t match up well with short term hot money.
SVB waited too long to take action, knowing that interest rates were rising.
It could have sold off some of its long term bonds last year and taken a small loss. Instead, it prayed for salvation as it approach the financial guillotine. It was too late for anything but to pay the executioner.
Yep, this was entirely the fault of the C-suite – not paying attention to what was cooking on the back burners.
And until the executives are personally responsible for their own negligence or misconduct, the too-big-to-fail bank aristocracy will not scrutinize what goes on below them.
1000+++ HN:
Thank you,,, and please keep us on Wolf’s Wonder current on your thinking.
WE, in this case the family WE are considering investments in several directions/modalities,,,
AND definitely appreciate any and all informed commenters on WS,, not to mention Wolf’s.
I CHOOSE to support Wolf with cash twice per year, and will continue to do so.
major SVB stock sales by the execs less than 2 weeks before collapse. 2022 bonuses were distributed the day before the collapse. billionaires demanding full bailout. NOTHING has changed since the GFC. another push to socialize the losses of the super rich.
let it all burn
Apparently 93% of Silicon Valley Bank’s deposits were uninsured.
What happens to those? Do they all just go “poof”?
Maybe they were all deposits from Cathie Wood’s funds….
Uninsured depositors
4th paragraph in.. or 2nd paragraph after the bullet points
” It looks like they will get at least a portion of their funds.”
Doesn’t exactly inspire the greatest confidence. ‘Something between 1% and 90% maybe’. We’re talking about huge sums of money.
Uninsured depositors will get some of they money back, but not all of it. That might speed up the end of Tech Bubble 2. Many startups will get a haircut on their VC cash, and it’s going to be harder for them to raise new funding now.
Or perhaps stay in business. Let’s watch this slaughter together. I’ll bring the popcorn.
Although they’ll get money back, there are some companies already telling employees they can’t make payroll (saw in a guardian article) and are at major risk. A lot of them have their money spread around various banks and will be fine, at least for now, but had a large portion of their funds in svb, including Roku (about 25%) and farmrx.
no, but there will be a delay in them getting their money and you MUST meet payroll if you are a business. Fed must get in front of this. You can’t have companies wondering if they are going to have access to their funds.
Creative destruction. The Feds should sit on their hands and do nothing. I usually agree with OS, but not on this one.
My understanding is unless something is done company CFOs are going to continue pulling money from the weakest banks. Evidently sufficient information is available from FDIC to identify them and if you are a corporate treasurer you have to make sure you don’t get caught in a FDIC takeover. Old fashion bank run unless you stop panic immediately. Hopefully Whalen is wrong, but he seems no know gears of banking better than Powell.
It sounds like the institution was well capitalized. This is not like the Bitcoin guys.
So I would imagine they get nearly all of it back, eventually.
Problem is timing. They got payroll and bills, and didn’t properly diversify their cash reserves.
I imagine the list of companies that were depositors will start being released this weekend. Of course, the publicly traded ones won’t want their names displayed or leaked or rumored as their chart will resemble SIVB’s on Monday morning before the open! San Fran RE going to take another leg down!!!!!!
Yep
The monthly Dow : Apr 2001 to Dec 2014 highs, parallel from Oct 2011
low. Today low on support.
As painful as this might be for some involved with that bank, this is the best financial news I have read in a while. Investors need to re-learn that uncle Sam may not come riding to the rescue.
CNBC says Bill Ackman is out there calling for a bailout. If that happens, I plan to stop showering and sit in front of some wall street or federal buildings with bongos. That is if my wife let’s me.
LOL! I’ll bring castanets and some appropriate beat poetry. (That is, if your wife lets me).
The legendary hitchhiker says that he knows where it’s at
Now he’d like to go to Spain or somewhere like that
With his two-tone Bible and his funny cigarettes
His suntan lotion and his castanets
He was waiting for the end of the world
You may see them drowning as you stroll along the beach
But don’t throw out the lifeline till they’re clean out of reach
(with apologies to Lawrence Ferlinghetti)
I am waiting
for the Age of Startups
to drop dead
and I am waiting
for the war to be fought
which will make the world safe
from banks
and I am waiting
for the final withering away
of the tech bros
Did not see this before I typed mine. 😂 With you. DGAS if my wife lets me.
He probably bought a huge amount of SIVB shares on the dip.
Which is the first question anybody giving him airtime should be asking him. Did they ask him?
Bill Ackman is the same guy who went Chicken Little all over the media during the COVID plunge in 2020, saying it would be the end of the world as we know it.
Then, shortly thereafter, he cashed in his $2 billion short position.
Without going into historical details (you don´t have to believe what I say), but I think Bill Ackman is total scum. This comes from past experiences dealing with certain of his ¨investments¨. It has been a few years since I have had to deal with it, but Bill Ackman, in my mind, will never change who he is. Bill Ackman was total scum back then and he is total scum today:) Happy Friday everyone!
Perhaps this is why the Fed has been raising rates slowly compared
to the inflation rate. The banks in some cases are facing the same
problem the S&Ls did. Powell is trying to cushion the loss to protect
problem banks. Meanwhile, small time savers see their savings eroded by inflation.
I wonder why this wasn’t a problem when Volcker hiked rates very sharply. Those hikes did destroy many residential and even commercial builders and suppliers, but I don’t remember it hitting other industries nearly as badly.
It did create a deep recession, though.
Part of it all is 10+ years of living with low fed rates. During vockler most companies knew what to do.
They’ve developed some bad habits over the years since debt is so cheap and Wall Street valued customer acquisition over profits. That’s unwinding now as we’re learning we might have to live with around 5-8% fed rate and 3-4% inflation, if my guess on what changed was china’s infinite production/labor capacity is about done.
Look up the Savings and Loan Crisis. (Some) Banking did eventually implode in a major way from Volcker’s Rate hikes.
Sorry I did not see this comment before I replied below, the OP obviously know about the S&L crisis. Sigh, it is what I get for reading from the bottom up.
My understanding is the covenants for startup that borrowed from SIVB was to leave their cash in sivb. So, maybe were trapped! Now the startup is required to make interest payments on their loans to sivb but their cash is seized pending winddown and their cash balance may be zero when all is said and done. Going to be a rough weekend! Any assets that have any value will be going for fire sale prices soon.
Regular guy Greg Ackman said the government should bail them out or lose a key driver of the economy. Which begs the question; what are Pershing’s losses in SVB? And what other knock-ons might we see in the next two weeks?
Pershing may have bought a big pile of shares on the dip.
Ackman would NEVER have the nerve to ask for a bailout a distressed company that he may have shares invested!
)))
I’m sure you’re right. Just saw the CEO sold $3.6 mil two weeks ago too.
PRISON for FRAUD,people are tired of this shitshow. I predict chaos soon . But people are like sheep= they get slaughtered,we will soon find out
Correct ..SVB (ticker: SVB) President and CEO Greg Becker sold 12,451 shares on Feb. 27 for $3.6 million, an average price of $287.42 each. That day he also acquired the same number of shares using stock options priced at $105.18 each, according to a form he filed with the Securities and Exchange Commission.
(Barron’s)
Exactly. As if these guys actually have the country, the whole economy or whatever else in mind.
I haven’t a clue how exposed they are but you are 100% right where your trending with that question. We’ll know soon enough.
Will the CEO get to collect unemployment insurance for doing such a physically and mentally demanding job?
He may end up with a bonus. John Thane, the former CEO of Merrill Lynch, after only 9 months on the job, during which time $15 billions of ML loses were racked up, was able to get $3.6 billion (with a b) in bonus money for the ML executives. This was arranged just before the brokerage’s insolvency, but done with the blessings of then B of A CEO, Ken Lewis. Timing couldn’t have been better for Thane although he wasn’t able to enjoy the $1.2 million refurbishment of the executive suite a few months earlier.
And Thane got a “standing ovation” when he spoke to business students at Wharton a few years later.
I s**t you not.
A key driver of the economy. That’s almost too funny. Cash furnaces driving anything except bonuses to management.
As if no other competitor will ever step in and assume their business.
In 2008, a lot of banks were allowed to fail. I banked at 2 of them. If I remember correctly lehman brothers and AIG were a bridge too far.
my ex said the same thing. ‘my money is my money and your money is my money’.
SVB forgot the old banking adage
“We only want to give you money when you don’t need it”
What will the impact be on other SV startups that banked there?
My guess is that it will accelerate the mass extinction event.
I think a game plan that many hedge funds and who knows who else were playing at ZIRP was is they buy U.S. Treasuries or Guaranteed MBS and then they use this for collateral to leverage 3x or 5x and borrow cash that then loan this cash out at a higher rate or they buy investments that have higher rate returns. In a ZIRP world, they had easy access to cash in yield starved investors.
As long as they do not get in a liquidity crunch themselves and have to sell those US treasuries or MBS ( which now would at a 50% or more loss) they were good. But this is what happened during the QT Tantrum in 2018. Rates rose and some of these leveraged bets blew up.
I kept thinking we are in the same scenario. I keep waiting for things to blow up as now yield starve investors can find good yields in treasuries.
I may not be explaining to the exact scenario, but a lot of this 3x and 5x leverage bets explained above went into zombie companies or private equity buyouts who were willing to borrow money at high rates. If they are burning through this money, some of these hedge fund type of plays are going to blow up.
Wow! Just Wow!
This bank survived the DotCom bust and the GFC. I guess unlimited funding of SPACs and the Absurd was too much for them.
We are all on an airliner with a massive storm ahead. The initial turbulance is frightening to the most of the passengers without a destroyed tech toy. The tech toy crowd is pennyless. Will our fearless Fed pilots still be able to steer us to a soft landing?
Stay tuned for the next exciting Wolf episode.
Yellen says she is “monitoring” the situation. That does not give me the warm fuzzies.
Interesting that SVB CEO Greg Becker, is also the director of the
Federal Reserve Bank of San Francisco.
Yes, like Inmelt, the CEO of GE which owned the huge GE Financial, was on the board of the New York Fed when it engineered the bailout of Ge Financial during the Financial Crisis. I doubt SVB is getting a bailout. It’s too late for that. The FDIC already owns the joint. It knows what to do with it. He’s going to get booted off the SF Fed board, and end of story.
Well, when he stated that SVB is well capitalized and has plenty
of liquidity just two days ago, perhaps just being booted off the board isn’t punishment enough ?
Correct.
And he already got booted off today — he resigned, obviously, to spend more time with his family.
Lol, I bet the wife is thrilled.
and dont forget Steve Friedman who was on the Goldman Sachs Board of Directors and also head of the New York Fed at the same time….during the 2009 bailouts, of which Goldman Sachs was a recipient.
I just saw that Eric Swalwell is calling for, insisting on, an SVB total bailout. I hope someone tells him that the CEO Becker sold 3.75 mil in stocks in the last two weeks. Two other top execs sold their stocks also. And then said with a straight face ‘everything is fine here, nothing to see.’ Swalwell: “If depositors lose confidence on the safety of their deposits over $250,000 then we are in trouble.”
Then???
Entire VC community — full of billionaires — is going to innovate and disrupt by calling for a bank bailout to benefit themselves, LOL.
Wolf said: “He’s going to get booted off the SF Fed board, and end of story.”
=======================
clairvoyant
It shows the competence and interests of our Fed leaders.
Wow fed members =bank CEO,s truly corrupt the inmates are running the prison. Total ignorance
The things I learn on Wolf Street I will never learn anywhere else. I remember in 2008 watching the business channels on television. Two years into the crash they were still explaining to viewers that being upside down meant you owed more on the mortgage than the house was worth. I will remain a faithful reader of Wolf Street and maybe I can wrap my mind around at least half of this mess
In 2008-2009, FDIC handled bank failures over the weekend. Like Wolf just said, the SVB collapse was addressed on Friday morning. Some serious and urgent problems needed to be taken care of quickly. Because of the timing, this is a bigger red flag than usual. We will have to wait to see the fall-out over the weeks to come. It does not look good.
William, I had the same thoughts of this immediate response. I used to play FDIC Friday on Marketwatch in 08 and 09 and the bank takeovers were never announced until later Friday night.
We might be missing some critical information here.
Goomee, my amusement at the time was to read of a bank failure and then go immediately to the bank’s web site to read all about what a great bank it is.
Just saw this article at MW “20 banks that are sitting on huge potential securities losses—as was SVB”.
I have owned some banks in the past, right now I only have a little Citigroup and Wintrust. There are some good sized banks on this list.
Prices of those securities SPIKED over the past two days amid a buying panic. So the problem just got a lot smaller, LOL
Whoever edits Wikipedia works faster than SVB’s web guys. They already changed SVB’s page to past tense, while the bank page still looks as if nothing happened.
RG62: That actually makes sense. Wikipedia pages can generally be edited by anyone, so there could be millions of people trying to be “the first” to break the news there. On the other hand, the bank’s website probably only had a handful of people who could change it’s contents, and I suspect they were a bit distracted on Friday.
The critical information is not missing. It’s that companies were pulling their cash out in very large amounts, and amid total chaos, and the FDIC instantly stepped in to stop it before more cash was leaving. This was in fairness to all stakeholders.
@ Wolf – I don’t think a withdrawal customer at the teller’s window when the window slammed closed would agree with you.
Yes, being fair to all can feel bad for the individual that tried to get ahead of the line.
Apt 2011 high to Dec 2014 high.
Me thinks they got caught believing the “transitory” nonsense. Why else would you be buying so much 0.5% crapola. Better to just park overnight at the fed. Poor management of the situation as it unfolded causing the run. No 1 thing not to say to a room full of investors, “don’t panic”.
I love that the BTFD crowd got rinsed and lost 100%. Beautiful work.
You do have a way with words Depth Charge.. lol
Headline:
“SCB CEO Becker Sold $3.6 million in Stock Nearly Two Weeks Ago”
I’m sure it didn’t have any insider info .
I wonder where he deposited the proceeds.
Treasury Direct and Vanguard.
How this affect start-ups and the start-up environment will be interesting. Something like 97% of the deposits are uninsured. From what I hear many start-ups banked with SVB and if the comment above is correct were even required to do so in some cases. When they can’t make payroll or an interest payment bad things generally start happening to companies. This is could be a big deal for an area that has generated enormous wealth and prosperity for many, many people. I know, I know, it was stolen from the taxpayers via below market interest rates held there by policies of the FED, but it is a growth machine for the world.
This collapse might be pretty bad for SV startups
true innovation always will have a bid and there’s plenty of smart people who know how to get it off the ground. however most of what’s going down in flames or having their runways pulled is fake, hype-nnovation. VC’s can’t dump it on you via SPACs and IPOs … and they know it’s crap. great to see Softbank unwilling to dump more money into WeWork. but i’m sure they tried to get more dumb sovereign wealth fund money to get them off the hook. let it burn baby …
The Fed will dump RRP to provide liquidity.
SVB is very engrained in ALL aspects of large customer accounts.
Everything from Payroll, Payables, Personal Lending, Mortgage, Stock Loans, etcc.
They also did wealth planning, this is going to crush some people.
Beautiful wealth planning. Like a work of art.
I wonder how many commercial RE loans buying empty residential “investment” properties were taken out with them? And how many will now default?
The Treasury will be scrutinizing Regional Banks all weekend. The Plunge Protection Team will be guarding the fort wearing full body armor on Monday morning. Nothing to see here, look away.
The issue seems larger than just one Bank. There was on heck of a sell off today of any and all credit instruments including the 10 year bond. So perhaps many banks have exposure to startups and speculative things.
People yanked their deposits that exceed FDIC limits out of banks and bought Treasuries. This was a moment of depositor panic that drove up Treasury prices (drove down yields).
That explains it. Thank you as always for your insight and hard work.
“The FDIC stepped in early enough before the situation deteriorated so much that the costs for the FDIC would begin to balloon.”
This party has just got started. FDIC is fly on the wall to what is coming.
Counterparty risk, MTM risk, settlement risk, custodial risk, leverage risk, collateral risk, concentration risk… stuff has been brewing for years even before the lockdown olympics (which was just icing on the cake imo).
At least it showed yet again, that going against what Jim Cramer says is a safe bet…
It will be a tough few months for people holding highly speculative assets. Will the Fed and Treasury come out with some soothing pivot-favorable language, or will they let the carnage continue for a while?
If we see the “powers that be” start to waffle as we hit these minor bumps, we’ll know they have very little inflation-fighting conviction. If they stand by and watch, it appears the semblance of a spine could be growing, which is not good for risk assets.
In 2008/2009/2010, we had HUNDREDS of bank failures. We haven’t started down the path of resolution yet.
As usual, great comments and analysis on WS’s site. After the dust settles and smoke clears, here is how I think this is going to play out:
– Over the weekend, SVB will get “absorbed” by a large, well capitalized bank that has more than enough cash/liquidity on hand. BTW, for basically free. Early rumor will is Chase but this is just a rumor at this stage.
– SVB had approximately $210 billion of assets as of 12/31/22. The majority of the assets were in investments and loans (call it $200 billion). Assuming the assets were not in highly speculative vehicles (which his doubtful as most I believe were in treasuries, MBSs, and other similar graded investments), let’s assume a 33% haircut on the investments via implementing an orderly asset liquidation. This results in a net loss of $66 billion resulting in realized net asset value of $144 billion ($200 billion less $66 billion plus $10 billion of liquid cash on hand).
– Back to the deposits of $173 billion, assuming $23 billion are insured this leaves $150 billion uninsured. With $144 billion of assets less $23 billion to insured deposits, this leaves $121 billion of assets against $150 billion of uninsured deposits. So if there’s no actual or implied bailout (see next bullet), the uninsured deposits would get about 80% on the dollar.
– However, here’s the kicker. The Fed and Treasury both know that vaporizing $150 billion of uninsured deposits will unleash some real pain and risk creating contagion (as bank runs will ensue across the country). They understand that this capital is essential to businesses so my guess is that good old Janet and Jerome, with a “wink/wink and slimy handshake” will provide some type of guarantee to the bank absorbing SVB that no losses on the customer deposits assumed will be realized.
– As for the SVB equity and debt investors, comprised of roughly $40 billion as of 12/31/22, these parties will be wiped out.
– Also keep in mind that as of today, roughly $2.2 trillion of reverse repos are outstanding with the Fed indicating that plenty of cash is still available in the system (partly as a result of how slow the Fed QT is proceeding).
As much as I know that prudent and diligent parties (especially on this website) would love to see the greedy financiers taught a lesson with SVB, more than likely it will only be a partial lesson. Just too many unknowns right now so cutting a deal to protect the deposits and wiping out the equity and bond investors will probably be the middle ground deal in this situation.
BTW, does anyone know who wrote the CDS’s on the SVB debt? Might be an interesting play here.
Some bright people are agreeing with this take,
Although Tyler thinks it is more like 3% is insured. Wish I was a fly on some of these meeting rooms walls so to say.
SVB lost about 9% on selling all their $21 billion AFS securities. So that’s kind of a guideline. Treasuries and agency MBS are huge and fairly liquid markets, and prices JUMPED today — amid huge demand.
So if the FDIC spends just a few days lining up buyers, I think the losses on those two classes of securities will be a lot less than 30%.
So at the end of the day, what do we think on the 2 important questions.
How much % uninsured will come back to depositors and when?
Thanks Wolf and agreed, losses should be less as long as the assets are of good quality and sold/liquidated in an orderly fashion. I was looking at more of a worse case scenario if the situation gets out of hand.
If losses remain in the 10 to 20% range in total (still above your estimate of 9%), all deposits should be 100% recoverable. I’m sure the FDIC and FED are hoping for this type of outcome and relatively quickly to ensure the capital remains available to businesses.
Always appreciate your feedback and articles, extremely useful and insightful. BTW, since I had a front row seat to the Great Recession from 2007 through 2009 (yes, I’m dating myself here), I would say the failure of SVB is nothing compared to the meltdown in 2008. Being a fractional CFO for small businesses, I basically didn’t sleep for two years. What a s…show that was over a decade ago.
Wolf sorry for the link, I will reread the rules, I thought a link here and there is OK. No need to reply just me acknowledging that I need to go and check up on the rules to make sure I will comply.
Found the SVB mark-to-market loss hidden by the financial crisis “mark-to-fantasy” changes in 2009, per Bloomberg:
SVB easily cleared regulatory hurdles assessing its financial health.
But beneath the surface were severe losses on long-term bonds, snapped up during that period of rapid deposit growth, that had been largely shielded from view thanks to accounting rules. It had mark-to-market losses in excess of $15 billion at the end of 2022 for securities held to maturity, almost equivalent to its entire equity base of $16.2 billion.
Bloomberg showed SVB held about $108 billion of treasury and agency. So if they sold $21 billion at a loss of $1.8 billion, they might average out to another $7.5 billion mark to market loss?
Seems kind of trivial with such big money banks who could absorb them whole with spare change, right? Maybe the get split up this weekend, but there is talk of a single bank absorbing them also.
Fascinating that a 9% loss on govt debt is enough to sink a 40 year old bank.
Noticed Bloomberg SVB headlines are approaching DEFCON 1 tonight:
SVB Chief Sold $3.6 Million in Stock Days Before Bank’s Failure
SVB Depositors, Investors Tried to Pull $42 Billion Thursday
SVB Spectacularly Fails After Unthinkable Heresy Becomes Reality
How a Bank Run Closed SVB and Where That Could Lead
Summers Warns Consequences ‘Severe’ If SVB Deposits Not Released
Roku Slides After Reporting That Failed Bank Holds Chunk of Cash (26% of Roku cash)
Yellen Says Bank System Resilient Despite SVB Collapse
Stock Market Miracle Collapses on Systemic Angst Spurred by SVB
SVB Seeks Quick Savior After Regulators Shut Banking Operations
Wall Street Frets Over Next Shoe to Drop After SVB: Markets Wrap
Thiel’s Founders Fund Withdrew Millions From Silicon Valley Bank
Fed Rate Outlook Overshadowed as SVB Collides With Jobs Report
SVB and Silvergate Tumult Has Echoes in Texas Bank Crisis
Why Is the US Regulating JPMorgan But Not SVB?
SVB’s Demise Isn’t a Regulatory Failure
Silicon Valley Bank’s Swoon Should Really Scare Us
Don’t you think they sold the bonds with the highest rates that they took the smallest loss on? If they sold all the “good stuff” and were losing 9% on it, isn’t it reasonable to think that they would lose even more on the other stuff they didn’t sell yet? (Setting aside the fact that rates went down today so the value of whatever they have left went up)
That’s a really good point. I have a 5 year CD from July 2021 with a 0.95% rate that is valued about 87 cents on the dollar. All I have to do is wait for July of 2026 to get the extra 13 cents.
Assuming the 1.8 billion loss on 21 billion in sales was cherry-picked to minimize losses, maybe they are sitting on a ton of really low yield debt.
Probably.
They sold “ALL” their available for sale securities. Those were supposed to have been marked to market on a quarterly basis, so most recently in their Q4 financial statements, to market value as of Dec 31. Yields have jumped and prices have fallen since Dec 31. So if they marked them to market correctly on Dec 31, they would still have had a big loss, and they did.
Then they have securities that were held to maturity, and they didn’t sell those. Those were not marked to market and would likely entail a bigger loss.
Thanks for the great article. From what I’m reading online, agency paper prices did NOT jump yesterday, only Treasury securities, and my guess is most bank AVS investment is in agency paper. Judging by Key Bank, in which I have a small holding, 2% of the total, the majority of Available for Sale Investments per the 12/31/2022 10K are in Residential CMOs (20.2 Billion 44.3%), Residential MBS (4.6 Billion 10.1%), and Commercial MBS (10.7 Billion 23.5%) with a combined Unrealized Loss of 5.8 Billion. So I suppose the relatively higher rates on agency paper was tempting to management in a ZIRP environment. This also begs the question: How much exposure do the government agencies have to the real estate market, if it tanks?
Interesting numbers, thank you.
Thanks for this great analysis. I may be proven wrong by the time anyone reads this but I doubt whether a well capitalized bank steps up. Bank of America was seriously burned by its acquisition of Countywide and I think there were problems with some of the other shotgun weddings in 2008. Does a major institution really want to take on the operational, regulatory, and litigation risks from a failed institution?
Wondering about one of our banks changing hands multiple times in the past MJ, I read up on the questions you ask:
IIRC, all of the risk items are usually guaranteed by FDIC to the bank taking over.
Be happy to hear differently, but that does seem fair considering ”banksterese.”
Also, responding to some thing way earlier, it is very important to keep in mind that banks OWN the FED, and the FED works FOR the BANKS, and only for the banks, no matter what lip service they pay otherwise.
They could get a deal: the best assets at market value, and in return accept the deposits (the liabilities) plus get a few 10s of billions to make up the difference. I’m with you, I don’t think anyone would want to buy the corporation.
This has me wondering if there is private insurance available for balances above the FDIC $250,000?
Interestingly, Value Line still lists SVB’s financial strength a “A.”
Go read the FDIC site. There’s several ways to get in excess of $250K in deposit insurance. Most have to do with the ways an account can be titled as it’s per depositor per account and category. The FDIC has a calculator on their site that you can use to determine coverage for your situation.
So, without the details, it’s hard to calculate who’s losing what.
I was trading SIVB in PM. Luckily I only had a small short position when it was halted. Assuming, the stock reopens (hopefully at about $1), how long would you expect I will have to wait?
“SVB’s institutional challenges reflect a larger and more widespread systemic issue: The banking industry is sitting on a ton of low-yielding assets that, thanks to the last year of rate increases, are now far underwater — and sinking,” wrote Konrad Alt, co-founder of Klaros Group.
Alt estimated that rate increases have “effectively wiped out approximately 28% of all the capital in the banking industry as of the end of 2022.”
From CNN. It’s the last para that scares.
it’s the lasts para that scares…..uh huh…as it should.
I imagine bankers forgot about how rates affect bond principal over the 20 years of ZIRP.
start-up yellow slips will be texted out all weekend, I’d guess. Massive effort to cut expenses to the bone, survival mode. Knowing you’ve just lost some % of the capital reqd to move to hoped for profitability, and having no idea of what % is lost…..no choice but to burn the furniture, sack employees a la Musk, break leases a la Musk, do whatever’s required to preserve capital……if landlord wants to sue, fine…that’s tomorrow’s problem……today, it’s ‘save the company’.
Carnage.
And ditto, in some sectors of the stock mkt next week ???
If we’ve been waiting for a stock market ‘puke’ moment……???
GM announced cuts of @ $2B in expenses and offering buyouts to virtually all white collar workers….. or so says Automotive News. So it’s not all “startups” that are digging moats.
You’re misreading this. Like all legacy automakers, GM is reducing its ICE divisions and is hiring in its EV divisions. Ford has come out with the same thing. Ford said that the skills are not easily transferable (think powertrains, including emission controls, engine controls, transaxles/transmissions, all the related software, sensors, cooling systems, fuel systems, starters, etc., plus suspensions, chassis, etc.). VW said this years ago in Germany, warning of 10s of thousands of future layoffs in its ICE divisions while heavily hiring in its EV divisions. This is happening everywhere. This is a huge shift in the industry.
EVs are simpler to assemble than ICE vehicles and will require less manual labor. Every automaker is seeing this now. So if you switch a plant with 3,000 workers from assembling ICE powertrains and vehicles to assembling EV powertrains and vehicles, you don’t need 3,000 workers to produce the same number of vehicles. This is a sign of strength and development in the economy, not a sign of weakness.
Wolf said: “This is a sign of strength and development in the economy, not a sign of weakness.”
——————————————
is this true only if those displaced workers find other productive pursuits?
Jesus wolf is smart.
The take over by FDIC will provide a slower rate of sale of the banks assets giving the markets less of a shock. If the bank was allowed to sell off most of their assets in a few days or hours it may have started something BIG.
Prices of those assets (bonds) spiked today, LOL. Amid panic buying. This market is LOOKING for supply, and the FDIC will have no problems selling the securities.
I wonder how long it’ll take for at least some of the depositors to fold with their money and bank completely gone. And how many will fold.
Leverage sinks all ships = GRANDMA. Good luck millionaires in soup lines
“Law & Disorder: SVB”
Episode 1: The Bank Nazi – No Withdrawals for You.
Tensions rise as Special Victims Bank patrons are denied entry and online access, and stage a mostly peaceful protest at branch locations organized by Billionaires Lives Matter.
Makes me want to re watch hbo’s Silicon Valley comedy series (Mike Judge). I bet there is more truth than folks would admit. Long live Hooli.
A couple of points
1. Risk free 2 year historical structure was 2% + inflation rate
a. 2% + 6.4% = 8.4% risk and inflation free 2 yr
b. 8.4 – 4.835 ~ 3.5% under priced per inflation
c. 3.5 / 0.50 = 7 more 50 basis increases just to zero out
Because open market operations have removed the historic system of interest rate discovery we have become blind and grotesquely entitled
2. The new four letter acronym NPVR – net present value revisions
a. Even now the discount rate is 3.5% light (on short termed and risk free) that should make the hair on the nap of your neck stand up!
In all of this Sturm und Drang, I think the FDIC did a proper job today.
I agree. It did its job well. The FDIC is pretty good about it if the Fed and politicians let it do its job.
I pointed that out in the article too:
“This is how a bank collapse is supposed to be handled. The FDIC stepped in early enough before the situation deteriorated so much that the costs for the FDIC would begin to balloon.”
Wolf, apparently about 95% of SVB’s deposits were uninsured, according to filings with the SEC. . Most of this bank’s customers are businesses, and it looks like over 90% of these accounts are insured to no more than this $250,000.
In other words, this is going to be a huge hit to Silicon Valley businesses, if their payroll and other deposits were in SVB…
Not that huge. I’ll just repeat what I already said here:
This is what the FDIC is going to do. From the article:
“The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
1. This advance dividend = cash payment of a portion of the deposit.
2. There are already companies offering to buy those “receivership certificates” so they can be turned into cash.
SVB had about $209 billion in assets (securities, loans, other) at the end of Dec. It lost about 9% on selling all their $21 billion AFS securities. So that’s kind of a guideline for securities. Treasuries and agency MBS are huge and fairly liquid markets, and prices JUMPED today — amid huge demand.
So if the FDIC spends just a few days lining up buyers, I think the losses on those two classes of securities will not be big.
So the haircut uninsured depositors is not going to be huge. It would reflect at the maximum the amount that the FDIC collects from the asset sales minus the amount it has to pay out to insured depositors and secured creditors.
So I think the range for uninsured creditors is somewhere between 0% haircut and 20% haircut.
The irony is that since this happened, bond prices JUMPED (yields plunged today), and so for now the shortfall is going to be smaller.
There is a really good chance loans will take more than a 20% haircut, a lot more. That’s $74B on the balance sheet.
A tech news site is reporting that Jeffries is offering uninsured depositors 70% of the face value of their certificates on Monday. So I agree with Wolf that the losses will be between 0% and 20%. I think it will be closer to the lower bound.
A countervailing force at the long end of the Treasury curve has been evident for months. This was never exclusively about elevated inflation and bond market dysfunction obstructing higher rates. Market forces were in play and perhaps Treasuries have been priced just about right up to this point.
The future direction of yields is not a settled matter, but at least now with a notable bank failure, the tension visible in the curve for some time has become intelligible.
AB, can you expand on this a bit? It sounds rather mystical.
HowNow
It wasn’t intended to be mystical. Just succinct and rounded.
From a macroeconomic viewpoint, there has been way too much emphasis on inflation. That’s because inflation brings social devastation. We can feel its impact. We can follow it on charts. We can emotively chat at about it on blogs.
The risk of something breaking doesn’t really appear until that something breaks. Before then, the ‘what’ and the ‘when’ are hard to predict, there are no charts or metrics and there’s nothing much to talk about.
On my assessment, the probability that something would break was greater than inflation lingering for many years, based on the 1970’s playbook.
It is in this context that the bond market, and its resistance to higher rates in the long-end of the curve, made sense to me.
Maybe things will calm down for a while, particularly if CPI on Tuesday doesn’t shock. Irrespective, more stuff will get broken this year.
The Fed is in a no-win situation of its own making. It desperately needs inflation to come down. That’s where it becomes mystical.
Thanks! I appreciate your comments. And I do like to puzzle over things mystical, generally speaking.
This, ” The risk of something breaking doesn’t really appear until that something breaks. Before then, the ‘what’ and the ‘when’ are hard to predict, there are no charts or metrics and there’s nothing much to talk about.” is nonsense.
Risk management is a very well developed concept supported very well by extensive data in almost every field of human endeavor.
That most folks choose to ignore the existence of risk and/or management of risk should not be confused with the solid foundation/basis of ”estimates” of events and their costs.
Surely its just another ”ART” based on scientific methods similar to medicine, all the social sciences, etc., etc.
VVNV – SWOT analysis, every day in every way…
may we all find a better day.
Interesting to me that markets are now pricing in 25bps instead of 50 in a couple weeks.
BUT… If inflation is hot does this really matter? Especially in two weeks won’t this be forgotten?
Seems like on overreaction today to me with the jobs report being mixed It looked like a really was coming🤷
Jobs report…kinda like moody’s rating for SVB.
Several Top Execs of SVB sold off all their stock positions 2 weeks before they went under. At the same time they were selling out, they put out public statements saying they were as solid as gold. Jim Cramer put out a “Buy, Buy, Buy” recommendation on CNBC two months ago. He said you were a fool not to get in, as the stock’s rise so far was the beginning of gigantic rally. I wonder how many lemmings followed his advise? I wonder how many of them will be joining his investment club?
I’m still trying to figure out why people were paying 6x book value for SVB. The company’s business is making loans. The best you can do is get repaid what you lent out, plus a little interest.
Plus, there really isn’t a way to generate large competitive advantages. Everybody is subject to the same interest rates. Financing is a commodity, kind of like airfare or milk.
This is why bank stocks usually always trade at 1.2x book value, not 6x book value.
Man this movie is great, more popcorn please!
In the next scene:
1. Moody’s will be lowering their credit grade by another notch.
2. JP will have a press conference to announce “startup is contained”.
3. wallstreetbets meme crowd will pile in to the stock and lose next month’s rent.
Uh Houston, tiles are starting to break off the space shuttle….
If depositors with accounts over $ 250,0000 do NOT get fully paid , how can bond holders get anything ?
In the capital structure of a bank, depositors are unsecured creditors, so near the bottom. That’s why there is deposit insurance.
There will be a contagion effect to be seen quite quickly. Payrolls and taxes payable are not shielded behind the corporate veil—they must be paid, and “The FDIC is telling me to wait a few more months” won’t work. So companies with deposits at SVB will have no choice to but issue layoff notices until their deposits are moved to another institution that will honor them, and not just up to $250k.
I was at a warehouse during the last blowup in 2006-2009. Customers would be told to keep making their debt payments to their bank, but their accounts had been frozen because they were over the FDIC limit. They couldn’t pay even if they wanted to, and “mail in the keys” was the only solution for many of them, at least the ones with non-recourse loans.
Every company Treasurer and Controller should be poring over their cash deposits, credit lines, and even those of their suppliers and customers—to ensure that the capital reserves are really there. There are dozens of banks like SVB, many with only just 1 or 2 physical branches, and who are run the same way. So they’ll be thinking—if this can happen at a huge, famous (relatively) bank like Silicon Valley, just because people are cashing out of CD’s and MM to buy Treasuries direct, it can happen anywhere except at the TBTF banks.
This is just getting started.
Tide going out. Naked people will be found.
“When a startup company with an account at Silicon Valley Bank got $10 million or $100 million or $500 million in new funding, the cash went into the company’s bank account at Silicon Valley Bank, to then get withdrawn and burned off in increments. When VCs pulled back from funding these startups, the cash-inflow into the deposit accounts dried up, while the cash-outflow continued, draining deposits from the bank.
The bank then had to sell assets and borrow money to fund those withdrawals.”
Am I not understanding something here ? If the Bank gets money deposited into the Bank, in the form of the Startup Company’s account at the Bank ($10, $100, $500 million) which is then withdrawn in “increments”, why on earth does the Bank need to “sell assets and borrow money to fund those withdrawls” ? The money that funds those “withdrawls” is already in the Bank in the form of the accounts of those Startup Companies ! WTF ! ?
See Whatsmynameagain’s comment below. The key part is the second sentence you quoted “When VCs pulled back from funding these startups, the cash-inflow into the deposit accounts dried up, while the cash-outflow continued, draining deposits from the bank.” Banks have some cash on hand but they invest the rest (in this case mostly in 10 year bonds). As interest rates went up, the value of those bonds went down so they were losing money as they were selling the bonds to get cash for the cash-outflows.
1) When startup co got 10M, 100M… they deposited the money in SVB bank.
2) This weekend one of the primary banks might takeover SVB bank.
This bank will provide liquidity to SVB small businesses customers to pay rent, bills and wages, supported by US gov.
3) Biden & yellen will not let small innovations co die. We have to keep them alive to compete with China. Biden and Yellen are for the small guys, the smart innovations guys that can change the world because they dared, not VC billionaires. Few of those co might become billion dollar unicorns.
4) When China opened to foreign investors in 2014 Janet Yellen raised %
rates to compete with China. When JP cont we got the Jan 2018 event. After JP persisted we got Xmas massacre. Gravity with Germany forced JP to yield. Thereafter we got Feb 2020 high.
5) SVB event might be tranquilized this weekend. We might get a RS of a H&S, but no Mar massacre.
Give it up with the partisan crap, Michael.
When deposits are made into bank accounts, the money doesn’t just sit there waiting to be withdrawn again. The bank puts the money to work in various ways in order to make more money. So if account holders try to withdraw more money than the bank has on hand, chaos can ensue, which is why safeguards are in place (as a response to past chaos) and why the FDIC exists. See great depression.
Damn it, meant as a response to Lars.
“The bank puts the money to work in various ways in order to make more money”
In a historical tightening, after historical rate lows, what could go wrong.
Is this a canary in the coal mine?
Most think that’s how it works but I suggest you try googling “do banks lend out deposits” and read some of the responses you get.
You’ll likely see a link to a .pdf published by the Bank of England titled “Money creation in the modern economy”, which is worth a read, IMO, but plenty of others too.
No one has deposits with a bank. It’s a loan.
That’s why it’s not guaranteed to be available on demand.
1) In 2008 Hank Paulson forced Ken Lewis, Bank of America CEO, to buy
Merrill Lynch and Countrywide.
2) Hank Paulson threatened Ken Lewis that he will lose his job if he will
disobey.
3) Hank Paulson promised Ken Lewis gov support, but declined to sign
on paper an Amity deal between BAC and US gov in order to avoid panic.
4) Ken Lewis was sacked after the dbl rape.
5) In Nov 20 2008 BAC was 2.60.
I know there’s an excellent argument for how stupid it was to buy Treasuries at ultra-low rates during the peak of the bond mania in 2020 (with lowest possible yields), but isn’t there a regulatory requirement where banks MUST buy such bonds regardless of how stupid it might have looked at the time?
Zero
and based on the relationship to treasury yields and current inflation, the relationship hasnt changed that much.
Ten year notes STILL way below inflation….
the entire curve has been below inflation for most of 14 years.
The Fed is now sitting on a pile of long debt worth much less than the price they paid. This all began in 2009 and Bernanke won the Nobel …. but are we not STILL dealing with his course of action and the consequences?
The balls are still in the air…the plates still spinning….
DM: Fears Silicon Valley Bank collapse could topple First Republic Bank next, as shares slump 40% in a month and investors voice concerns over losses on its investments
First Republic Bank, the the 16th largest in the US, saw its shares close down 15 per cent Friday, after the firm lost 40 per cent of its value over the last month. The concern was due to the collapse of similarly-positioned Silicon Valley Bank. Analysts expressed alarm when they noted that First Republic, like Silicon Valley Bank, had a large difference between the fair-market value (the estimated value) and balance-sheet value (the actual value) of its assets. Silicon Valley Bank’s difference was in debt securities, while First Republic’s was in loans.
In the event of a liquidity crisis in markets, the banking system is much less ready and able to battle those shocks because of the declining level of reserves,” said Matt Smith, investment director at asset manager Ruffer in London.
From s&p global report august 2022
The vast majority of bonds banks’ own remain in AFS portfolios and changes in the value of those portfolios flow through accumulated other comprehensive income, or AOCI, and impact tangible common equity.
Rates rose notably in the second quarter, with the average yields on the 5-year and 10-year Treasurys ending the period 112 basis points and 98 basis points higher, respectively, than the averages in the first quarter. Those increases in rates put even greater pressures on the values of AFS portfolios.
In the second quarter, institutions including U.S. commercial banks, savings banks, and savings and loan associations that file GAAP financials reported $105.94 billion in unrealized losses in their AFS portfolios, compared to $64.30 billion in unrealized losses in the prior quarter. Those institutions saw their median tangible book values dip 4.7% from the linked quarter despite more than $40 billion in earnings in the period
Some banks, particularly the nation’s largest institutions, have sought to protect large portions of their securities portfolios from swings in the market by placing bonds in their held-to-maturity, or HTM portfolios, which are not marked on a quarterly basis. For banks with over $700 billion in assets, changes in AOCI would impact regulatory capital in addition to tangible book value.
Large banks classified as U.S. global systemically important banks, or GSIB, holding companies — those with more than $700 billion in assets — have placed nearly 68% of their bond portfolios in held-to-maturity, or HTM, portfolios. That is up from 62% in the first quarter and just shy of 31% three years ago.
So,what happens when the depositors fails to pay their dues to the “others”? Other bank runs?
Wolf, If you are still out hunting for imploded stocks, as Chief Brody exclaimed..”we’re gonna need a bigger boat”.
I was listening to this guy, Whalen. Supposedly a banking specialist. He thinks 50bps rate cut coming as soon as Monday. That is wild if that happens.
I guess the lesson is clear, once you QE, you can never go back.
A 50bp cut next week would cause incalculably more damage to the US economic system on many different levels than just pressing forward with the original tightening plan as conceived before the SVB collapse, so I see no chance of cuts happening, personally.
Whalen was pretty firm that the banking system would start imploding Monday if Powell and Yellen didn’t get on TV with a plan Sunday. Looking forward to Monday to see if he knows his stuff.
He and his clients and the investor community he speaks for are losing a ton of money on their stock and bond holdings. They hated QT from the beginning, they hated rate hikes from the beginning. These are just the effing crybabies on Wall Street that got immensely rich with free money, and now they don’t want to give up any of it. They don’t mind even 20% inflation as long as they keep getting wealthier. To hell with them. I don’t even know why anyone listens to these manipulative insidious crybabies.
If they bail out this time around, I’m done, I’m moving, going to live in Turkey, Thailand or whatever for a fraction of the price.
If they bail out again for reasons that do not benefit my hard earned money and my normal life, that means they don’t really care about me and why should I pay my taxes to this derailed governance.
If they bail out again, our economy is toast and they will be saying it out loud, we will rob you again and again and again. Long live socialism!
People I talked to today, they think it’s normal, they will and should bail out. Then they went on discussing how they are looking to make it a stretch to buy an overpriced house (no luxury, no second home). They have to pay cash bc no one can qualify anymore with these mortgage rates.
In psychology this behavior it’s called helplessness. Very common in countries hit by natural or political disasters eg. Africa or Latin America.
First signof trouble and shot in arm? Dope fiend will never recover, and thats even more worrisome from inflation front.
The last time the Fed engaged in quantitative easing, it ended abruptly after bank reserves fell in September 2019 below the minimum needed to keep short-term funding markets running smoothly. This caused a spike in repo rates and forced the Fed to provide additional reserves to the banking system.
Is there any possibility of this happening again now?
The last time the Fed engaged in QT, it ended abruptly after bank reserves fell in September 2019 below the minimum needed to keep short-term funding markets running smoothly. This caused a spike in repo rates and forced the Fed to provide additional reserves to the banking system.
Is there any possibility of this happening again now?
Just look at the repo rates. They were just fine on Friday. And the Fed did not buy repos (its min bid rate is 4.75%).
There are $3 trillion in reserves. Double of what it was in Sep 2019.
If banks want more deposits (many don’t), they need to offer higher interest rates. 0.1% doesn’t cut it in a 4.5% world.
The foundation where I work routinely carries balances over the $250k insurance limit. Several years ago we added a service at our regional bank that automatically sweeps any excess over $250k to other banks. If there is more than $500k it sweeps to more than one additional bank, and so on. This happens every night. When the balance drops below $250k the money sweeps back automatically. We pay $25/month for this feature. There’s zero excuse for any company to carry uninsured deposits at a bank.
I have that too. I don’t have to pay for it. Hope it works. But I am moving money out of different banks now and whatever is left is well below the $250,000 FDIC insurance limit in each bank.
Whew!
What a week.
Insured depositor? Who will get their money back and is there a limit?
Read the article, not just the headline. It will tell you.
Was just listening to Christopher Whalen, crying about how shorts are taking advantage of vulnerable banks — that’s a pathetic and embarrassing take on reality!
Since last May, banks and corporations have been closely monitoring Fed activities, using high power microscopic quantum analysis.
If a bank like silverware or SVB feels they were out of the loop or suddenly taken off guard by inflation or rate hikes, they are incredibly stupid people that should not be involved with banking or financial management.
For Whalen to act as a shill for zombie entities and play dumb just adds more chaos into this valuation and price discovery process.
I seriously want stupid zombie corporations to crash from epic highs, to zero and not be bailed out. That entire generational cancer of easy free fun money has to be permanently destroyed ASAP, even if that includes a harsh recession.
I hope to God Whalen gets a 50 bps hike instead of a pause!!!!
There is no lack of passion among the Wolf St. commenters.
Yesterday I read a few theories as to why this went down the way it did. After all, originally it seemed as if this situation shouldn’t have spiraled out of control. SIVB was solvent even after taking the 1.8B haircut. Under most circumstances this wasn’t a HUGE loss. Big, but not huge.
So what happened after hours on Thurs? Peter Thiel, Jamie Dimon and others whispered that it might be a good time to withdraw all your money… So, what should have been a manageable situation turned into a massive bank run, with depositors pilling out about $42B in less than 24 hours.
Why would these fellow bankers do this? Well… the theory I think is possible is it would be a big win-win for the biggest banks. Well, they smelled blood in the water and realized that first they’d increase their own deposit base by a lot of money and adding some well heeled customers… BUT WAIT, there’s more….. not only would they improve their own financial circumstances, the insolvency of a major bank might send a message to The Fed that things were starting to break, which MIGHT influence the trajectory of rate hikes down the road.
We’ve all read the doom and gloom folks who were insisting the FED COULDN’T keep raising rates because “shit gonna break”. By creating a bank run they would further their own objectives and send a message to The Fed it’s time to slow the hikes down, maybe even (the P word… we’ve ALREADY seen the resurrection of if the discussion of it).
Do I think this is what happened and why? I don’t know though it absolutely wouldn’t surprise me. For these bankers, full of greed and self importance anything is possible. Will it work? Maybe, maybe not. It depends on if there are additional bank situations to take advantage of and break things a little more. Then it depends on the backbone and will of The Fed to still realize that if it doesn’t shut down inflation NOW, it’ll be almost impossible in the future…. I hope they stick to their guns..
I mean, sure, people do stupid shit.
But it’s akin to setting your neighbor’s house on fire during a drought to buy the property on the cheap. Sure, that may work and fuck that guy for letting his dog shit in your lawn but…
Fire can spread. And maybe that lot doesn’t get rebuilt as quickly as you would like, bringing the neighborhood’s pv down.
Dear God,
Please do not let this become the ZH comment section.
Amen
Sorry, I’ll not slip up again.
Grimp, This is not my intention. This is the first time I’ve made any comment that could be considered “conspiratorial” I don’t know if I believe this scenario is basically true or not. However, in this case it is within the realm of possibility. In the end, this was a BANK RUN that caused it to be shut down. Was there big managerial issues that set this up? Absolutely! But when a few of the Big Names start suggesting “even if there’s little risk” one should withdraw their money, it’s fair to look under the surface and wonder why them and why now.
I’ve learned to be someone who asks questions instead of accepting things at face value. That’s one of the reason I LOVE this site. Wolf’s experiences, wisdom and analytical abilities allow me to consider alternate explanations to the MMM narrative normally being pushed. YMMV
One should never believe that choir boys are running big firms, industrial, or financial. The “look” you get publicly is just that, a formed “look”. Smelling blood in the water is a bit closer to reality than most realize. It is a high stakes blood sport.
I think there is some truth that as a financial institution if people find out you are weak there is money to be made and people will try to make money even if it means you go under. Think Soros and Bank of England.
I am not sure he is right, but Whalen says you can’t run a bank under this manic central bank policy. Banks have to earn a spread to pay for building and people. If several regional banks go down this month then it will be a Fed policy mistake, not regional bankers mistakes. We will know in a few days.
Then how do you explain the practice of short selling and swaps? That is hoping to make money off a failure. It’s a mindset of these people, why would they not use this mindset, since they have been considered in the past to be ‘too big to fail’ and expect bailout money if something goes south? It’s not really their neighbor’s house.
It was entirely psychological, loss of confidence. The “reason” is irrelevant. End of story.
It can happen to any financial institution and if it gets big enough, any government or central bank stupid enough to get in the way, to the currency too.
I read Goldman was gonna handle stock sale and all of a sudden maybe whispers of it went out. Regardless CEO Barker was asleep at the wheel. J Powell will not relent in rate rises like he said in front of congress. A quarter or fifty doesn’t matter now, it’s been going on for twelve months of rising rates. The cats out of the bag, and it’s not a pig. I do agree with your suspicions though.
SVB bank small disruptive customers were suppose to get their money in tranches, but the is gone.
SVB elite lady on the judge will soon be gone after piling fake after fake,
on top of fakes, creating a pyramid of fakes.
But THAT’S the point! These are the biggest banks we’re talking about and having a nice fire that takes down the small to mid-size neighborhoods, but leave the rich neighborhoods mainly intact, while getting rate cuts and more Customers/Money…. would end up down the road strengthening and growing the rich neighborhood at the expense of others… Just my .02. I don’t trust these guys to give 2 shits about other people’s best interests.
Reading some of these comments, and the author’s reply, it would seem that the author and many of his readers don’t understand how serious this is. These are mainly commercial accounts. They need their money NOW, not when the FDIC gets around to reimbursing them. In other words, there are a lot of companies who are now going to have a SERIOUS LIQUIDITY CRISIS. The author seems to be confused as to the difference between solvency (i.e. maybe some day these commercial depositors will get their money back), and liquidity (they need the money NOW to survive, pay accounts payable, make payroll, etc)
If you doubt my words, try reading the Wall Street Journal or the Financial Times. This is serious. Several other major banks have lost between 25% to 50% of their market cap in just the past two days. Would you want to keep your commercial deposit in one of these banks? SVB IS THE 2ND LARGEST BANK FAILURE IN THE HISTORY OF THE UNITED STATES. THEY WERE THE 16TH LARGEST BANK IN THE COUNTRY. The risk of CONTAGION to other banks is SERIOUS. This is going to be a VERY difficult weekend for the FDIC, the Fed, and the Treasury Dept. They are no doubt having panicky meetings as I write these words on Saturday.
Nah. Let me give you some facts:
1. “SVB IS THE 2ND LARGEST BANK FAILURE IN THE HISTORY OF THE UNITED STATES.” Wow! Holy Cow! But, LOL, that’s in nominal dollars, and compared to nominal bank assets. So let me educate you:
— since 2008, total assets at commercial banks have more than DOUBLED, from $10.5 trillion to $22.8 trillion.
— Wamu had $307 billion in assets = 2.9% of total bank assets at the time.
— Silicon Valley Bank had $209 billion in assets = 0.9% of total bank assets today.
— Compared to banking assets, Wamu was THREE TIMES LARGER than Silicon Valley Bank.
2. YOU are confused by solvency and liquidity. A bank that is solvent, but illiquid will get short-term funding from the Fed’s Discount Window and the FHLBs. Banks that are deemed insolvent get no funding but are wound down. That’s what happened here.
3. The WSJ and FT have published a HUGE amount of garbage about all kinds of stuff, some of which I knocked down in my own articles. If they compared Wamu to SVB without clearly stating that Wamu was three times larger in terms of the banking system, they’re just lying to you.
4. Yes, bank stocks have plunged, but they SHOULD NEVER HAVE BEEN THIS HIGH TO BEGIN WITH. Look at a five-year chart of Republic Bank. This shitty bank stock MORE THAN DOUBLED from Dec 2019 to Nov 2021. It more than QUADRUPLED between 2014 and Nov 2021. This was pure consensual hallucination. So now the stock is back where it was in 2016. WHAT IS YOUR PROBLEM??? Do you think that stocks must always quadruple every few years?? Good lordy. Get real.
Meanwhile, in the ultra cool world of stable coins, crypto liquidity is somehow not stable? Why would digital laundry tokens linked to real money, suddenly be illiquid, versus super safe,hmmm?
I can almost remember that time when beanie babies lost their peg.
Circle has $3.3 billion of its $40 billion of USDC reserves at collapsed lender Silicon Valley Bank, the company said in a tweet Friday.
The coin broke its 1:1 dollar peg and fell as low as $0.88 early Saturday, according to market tracker CoinGecko. It recovered slightly to trade around $0.90.
So what are the assets of SVB composed of? They sold their liquid assets. Now don’t they have a bunch of junk loans to start-ups, many of which will crash and burn, and some of which who just took a haircut on their deposits? Wolf, what makes you think they are getting 80% plus back on deposits?What are the vultures paying for the certificates from FDIC?
I have questions for regulators.
It seems obvious the problem was insolvency, and not illiquidity, given the Fed commonly provides a lifeline to an illiquid but solvent bank.
How can SVB be insolvent if the 12/31/2022 balance sheet shows book value over $16 billion? Isn’t the SVB collapse an admission that valuations were overstated or that current bank balance accounting rules are faulty? Were auditors to blame? Was accounting fraud a problem?
More broadly, can the public rely on bank financial statements? If so, please explain why this wasn’t the case for SVB.
I think after 2008 or so, book to market of bank’s holdings are no more needed. There was a law which was passed IIRC.
So on book, a bank may say it’s value is $20B, but market price wise, it may be quite lower.
With rising rates, a lot of debt holdings, the market values are quite low but book value is quite more.
It doesn’t matter what the financial statements say. When confidence is lost, any financial services firm is toast. Not much if any different for non-financials either.
If you look at page 65 of the last 10K, they reported about $26 billion in available for sale securities as of Dec 31, which sounds pretty close to the $21 billion they sold, but they do state the AFS are at fair value based on things like higher interest rates. They also state a weighted average yield of 1.56%, which (assuming I understand correctly) is lower than new debt so the December fair values might be higher than today.
They also state they had about $91 billion in held to maturity securities accounted for at cost with no adjustments for changes in fair value. That might be the big problem if the fire sale prices are much lower than what they paid.
The HTM securities include $86 billion with listed carry values in excess of 10 years, and a weighted average yield of 1.63%. I bet the HTM’s are where the real pain will be if there is a huge disparity between market value and cost.
Good points, Eric. And I believe the valuation issue with this $91(or so)
billion in HTM securities may well be why the customers who had more than the $250,000 on deposit, will recover less than half of the face amount of their deposits.
The last paragraph from a ZH article this morning
When Razer CEO Min-Liang Tan tweeted late Friday that Twitter should buy SVB and turn into a digital bank, billionaire Elon Musk tweeted in reply, “I’m open to the idea.”
That should be a hoot?
Just another Musk joke? Like his weed joke of 420 funding secured, or his plan to found the Texas Institute of Technology and Science (get it? TITS)? That guy is hilarious. Part of his tweets is just humor.
Anyone that dealt with receivorship before… SIVB has a bunch of agencies (much much more liquid than their loans) in their hold to maturity line. How quickly will the FDIC sell that off? Next week, month or longer?
Just read this from another site:
This is from an 8-K filed by ROKU on 3/10/23. First canary:
“Item 8.01 Other Events.
Roku, Inc. (the “Company”) is aware that Silicon Valley Bank (“SVB”) was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. According to the FDIC, all insured depositors of SVB will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of SVB, future dividend payments may be made to uninsured depositors.
The Company has total cash and cash equivalents of approximately $1.9 billion as of March 10, 2023. Approximately $487 million is held at SVB, which represents approximately 26% of the Company’s cash and cash equivalents balance as of March 10, 2023. Approximately $1.4 billion of the Company’s cash and cash equivalents is distributed across multiple large financial institutions. The Company’s deposits with SVB are largely uninsured. At this time, the Company does not know to what extent the Company will be able to recover its cash on deposit at SVB.
Notwithstanding the closure of SVB, the Company continues to believe that its existing cash and cash equivalents balance and cash flow from operations will be sufficient to meet its working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.”
HowNow,
I did not get to your comment before posting my comment on ROKU above. That answers my question as to where the other $1.4 B is held. Thank you.
I wonder, do they teach this subject in business school?:
“How, now, to park your extra billion dollars in cash.”
(sorry, couldn’t resist …)
I may have to change my name to WhenThen.
Wolf, interested in your take on Credit Suisse delaying its annual report after the late call from SEC?
I’m waiting this out rather than spinning grand theories. That bank should have been wound down long ago. Nothing but scandals and crap.
Thiel got cash out before collapse…
SVB CEO sold millions in stock weeks ago…
Crisis leaves start-ups scrambling to pay workers…
Pain From Tech to Napa Valley…
Lightning Demise Stuns Banking Industry…
Crapto Shaken Again…
Is this situation analogous to the UK pension situation?
In UK situation, higher yielding long term bonds were bought with money raised with lower rate short term financing. When the rates on the short term bonds went up, the pension companies had to sell their long term bonds at a loss.
In the US bank situation, higher yielding, illiquid assets were bought with money raised by low interest short term deposits. The deposits went away when investors put their money in treasury direct or similar. The banks then had to sell their long term bonds at a loss.
short term financing : deposits :: long term bonds : illiquid assets
In the UK situation, BOE stepped in to support the long term bonds because of systemic risk to pensions. Will the Fed step in to support the long side of the these illiquid assets?
Interesting that we pretend that the unrealized loss of one trillion on the Fed’s balance sheet for bonds purchased at much lower prices is not a problem, yet, loss of 1.2 billion by the SVB bank are a major problem.
Both of these are a case of bankers buying “safe” bonds, but not considering the safety of the prices of those bonds, if they need to liquidate.
With the coming debt ceiling crisis, we might even find that the safety of repayment is a question mark.
Obviously, the Federal Reserve NEVER would need or want to sell US Treasuries before their maturities.
There is a HUGE difference between a bank and a central bank: a central bank creates its own money and it therefore can never run out of money, no matter how much it loses.
Losses on securities or operations are NEVER a problem for a central bank that creates its own money.
These same people that say that the Fed is insolvent are out there screaming that the Fed should re-start QE and buy more assets to prop up the markets, LOL.
There are a lot of things to worry about in the world. Insolvency of a central bank is not one of them.
sorry, i meant purchased at much higher prices (lower yields)
Less than 3 weeks ago, everyone had blinders on!
From FT
“ In the first quarter of this year, some analysts have become more optimistic. Wells Fargo analysts noted in January that its cheap stock “seems like the deal of the century” despite the stress on its income model. It said the bank was “well positioned to see future funding recovery” as squeezed tech companies draw on credit lines during the downturn.
Becker said SVB’s position will improve, as inflow of venture funding finds its floor and start-ups undergo aggressive cost cutting to avoid burning too quickly through cash reserves.
“Whether that takes nine, 12 or 15 months to turn around, for us it’s not the best-case scenario but it’s one we’re comfortable with. We have ample liquidity to support lots of scenarios that may get worse and worse.”
Uh, SVB UK was a thing, and UK tech companies used them, and now fear insolvency and are wanting a bailout.
The UK tax payer bailing out cash burn tech companies. That’ll go down well when the ratio of winners to losers in that space is pretty low.
Unless they mean bailing out SVB UK?
This is going to get messy quickly next week I think.
The big danger is that businesses will seriously consider taking all their money out of all small and regional banks and putting it in one of the big three (BofA, Chase, Citi) figuring they are too big to fail. That is what I would do. I would not want to risk my money AND be stuck with a payroll crisis because I picked the wrong bank.
That’s my concern. Amalgamated bank stock is looking shaky with tons of volume making me think the insiders know something bad is on the horizon. SVB insiders recent selling is going to land them a ton of lawsuits.
General backdrop, not including napa wine
Nearly half of the U.S. technology and health care companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers, according to the bank’s website.
How much Stock based loans or venture debt they had other than the treasuries?
The Federal Reserve Board of Governors announced that it will hold an emergency closed-door meeting under expedited procedures at 11:30 a.m. on March 13, 2023.
Matters to be considered at the emergency meeting will be: “Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.” -Investing.com
William Leake,
BS. There is nothing about “emergency” in the press release. Here is the actual press release:
3/10/2023
Advanced Notice of a Meeting under Expedited Procedures
A closed meeting of the Board of Governors of the Federal Reserve System will be held under expedited procedures at 11:30 a.m. on March 13, 2023. Matter(s) considered: Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.
https://www.federalreserve.gov/aboutthefed/boardmeetings/20230313closed.htm
These “closed board meetings held under expedited procedures” are routine, the last one was held on Feb 21. They have one or two a month, every month.
I get this stuff from the Fed in my inbox. Try not to pull this shit on me.
I wouldn’t dream of pulling shit on you, as you so delicately phrased it. I cited my source. I should have put quotes around the whole comment. If the source is unreliable, well, in this age of disinformation, everyone and everything is suspect, including you and me.
Possible titles for the Monday movie on Wolf Street:
“Honey, I shrunk the balance sheet (too far)”
“It’s a Miserable Life” and other musings by Jerome Powell
“Liquidity Impossible III”
When a unicorn and a pangolin make sweet love
I saw the Feds walking into my local bank back in 2008 to take them over. Pretty obvious. They all wear the same clothes, blue polos and blue pants.
I have worries about even the most conservative banks.
1) I was and am annoyed over banks paying 0.1% interest the last few years. Banks have to invest deposits somewhere to pay even the smallest interest. The safest bet was long term treasuries paying less than 1%. Now short term treasury bills are paying 5%. There already is a run on the banks by customers cleaning out their .1% savings accounts. The most conservative banks who went with the safest long term treasuries will be hit the hardest.
2) I suspect many tech companies have their payroll cash at SVB. Will this affect the paychecks for SV tech workers? Where are all of the executive bonus stocks being held?
The failure of SVB is directly related to Fed intervention in the bond market for the express purpose of wildly suppressing rates and massively increasing the monetary supply. It was completely predictable that at some future point in time rates would head back up from almost zero. Once rates start up, the mark to market value of longer term bonds held will be badly hurt. I’m not saying that the Fed shouldn’t have acted during the onset of the pandemic, it’s just that they overdid it by perhaps 200%.