Silicon Valley Bank crashing and burning

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C@LAg
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4:51p, 3/9/23
https://www.ft.com/content/69b70b4b-efeb-42c4-8882-c133f92d8356

Silicon Valley Bank shares plunged 60 per cent on Thursday, a day after launching a $2.25bn stock sale to shore up its balance sheet as it grapples with declining deposits from technology start-ups.

Shares of SVB Financial Group, Silicon Valley Bank's parent company, registered their biggest decline on record, wiping $9.6bn from the banking group's market capitalisation, after it admitted large losses on the sale of securities as it attempted to raise cash.

The decline sparked contagion among financial stocks more broadly, drawing attention to the potential effect that rising interest rates could have on net interest income at other banks. The four biggest US banks JPMorgan, Citigroup, Wells Fargo and Bank of America lost $52.4bn of market value in Thursday trading. SVB, the banking partner for half of US venture-backed tech and life sciences companies, has suffered from a slowdown in venture capital funding, as well as cash burn at many of its clients and losses on investments it made when rates were at rock-bottom levels.







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lucid
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5:00p, 3/9/23
AG
From https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanking-as-a-mess-unfolds/
Quote:
Becker said the bank has "ample liquidity" to support its clients "with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge."
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Ag87H2O
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5:01p, 3/9/23
AG
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CDUB98
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5:03p, 3/9/23
AG
Geez, I can't image what happens when free money goes away. I guess people actually have to be fiscally responsible.
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CDUB98
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In reply to lucid • 5:04p, 3/9/23
AG
lucid said:
From https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanking-as-a-mess-unfolds/
Quote:
Becker said the bank has "ample liquidity" to support its clients "with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge."



"I don't want to say we're in trouble, but we're totally ****ed."
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DallasAg 94
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5:11p, 3/9/23
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DallasAg 94
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5:12p, 3/9/23
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Malibu
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In reply to lucid • 5:16p, 3/9/23
lucid said:
From https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanking-as-a-mess-unfolds/
Quote:
Becker said the bank has "ample liquidity" to support its clients "with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge."

Well, if there's a run on deposits above the FDIC limit caused by herd mentality panic rather than actual liquidity/solvency issues, he's right, they and any other bank facing that are screwed. That said, a mature bank raising equity to shore up their balance sheet screams run away.
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cgh1999
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5:19p, 3/9/23
AG
Liquidity is going to be a MAJOR issue for every bank. Every bank I know is desperate for deposits to fund their loans and/or bond portfolios.

It won't just impact highly leveraged banks, but also conservative banks. The cost of deposits for many banks exceeds the return on their securities portfolios. So, they'll either lose money on the negative arbitrage or sell securities to avoid that. Which will further devalue their securities.

Leveraged banks (high loan to deposit ratio) may fare better assuming their loan portfolio is primarily floating rate debt. They'll still make money as long as their loans perform.

Which brings us to door #3. Mega cap REiTs are turning the keys over. Which means the little guys are in trouble. Which means their lenders are going to struggle.

Which brings us to door #4. Quantitative easing and government stimulus. The two things that put us into an inflationary environment will be the tools used to bail out the Banks after the economy gets crushed.

Folks - our country is addicted to crack. I don't think we have the stomach to hit bottom and have a true recovery.
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cgh1999
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In reply to Malibu • 5:22p, 3/9/23
AG
Admiral Adama said:
lucid said:
From https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanking-as-a-mess-unfolds/
Quote:
Becker said the bank has "ample liquidity" to support its clients "with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge."

Well, if there's a run on deposits above the FDIC limit caused by herd mentality panic rather than actual liquidity/solvency issues, he's right, they and any other bank facing that are screwed. That said, a mature bank raising equity to shore up their balance sheet screams run away.

I can't speak directly to SVB's condition, but the run on the banking system has been happening. The Fed tightening the money supply while people are having to pay more for goods and services has lowered the bank accounts of many consumers and businesses over the last few months. As I said, in my previous post, banks had either invested that insecurities, or had provided loans against those deposits.
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Dan Scott
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5:25p, 3/9/23
AG
For context its the 16th largest bank in America as of January 1, 2023. It is 1/15th the size of the largest bank, JPM.
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Detmersdislocatedshoulder
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In reply to Malibu • 5:53p, 3/9/23
Admiral Adama said:
lucid said:
From https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanking-as-a-mess-unfolds/
Quote:
Becker said the bank has "ample liquidity" to support its clients "with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge."

Well, if there's a run on deposits above the FDIC limit caused by herd mentality panic rather than actual liquidity/solvency issues, he's right, they and any other bank facing that are screwed. That said, a mature bank raising equity to shore up their balance sheet screams run away.


for fun think about this the fdic has 1% on hand of the money it ensures and in the really fine print it says they can take 99 years to pay you back.
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C@LAg
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In reply to Detmersdislocatedshoulder • 6:06p, 3/9/23
Detmersdislocatedshoulder said:



for fun think about this the fdic has 1% on hand of the money it ensures and in the really fine print it says they can take 99 years to pay you back.
by this point the Ukraine probably has 1% as well.
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Malibu
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In reply to cgh1999 • 6:27p, 3/9/23
cgh1999 said:
Liquidity is going to be a MAJOR issue for every bank. Every bank I know is desperate for deposits to fund their loans and/or bond portfolios.

It won't just impact highly leveraged banks, but also conservative banks. The cost of deposits for many banks exceeds the return on their securities portfolios. So, they'll either lose money on the negative arbitrage or sell securities to avoid that. Which will further devalue their securities.

Leveraged banks (high loan to deposit ratio) may fare better assuming their loan portfolio is primarily floating rate debt. They'll still make money as long as their loans perform.

Which brings us to door #3. Mega cap REiTs are turning the keys over. Which means the little guys are in trouble. Which means their lenders are going to struggle.

Which brings us to door #4. Quantitative easing and government stimulus. The two things that put us into an inflationary environment will be the tools used to bail out the Banks after the economy gets crushed.

Folks - our country is addicted to crack. I don't think we have the stomach to hit bottom and have a true recovery.

Great commentary and puts into light some of the conversations I've been having with loan officers. All the smaller banks we do recourse lending with have started being way more aggressive with their deposit requirements. One of the more amusing ones was the LOI requiring that we deposit 80% of the loan balance prior to closing. Bridge lending is getting fairly ridiculous with SOFR+ requirements with no ceilings, and when I've explained that leaves us open to risk of ruin, the banks have not any answers to what will happen to us and the bank if Jerome Powell doubles the cost of debt mid project.

It seems like you're in the industry, so that can explain it like I'm five on the floating rate? My assumption was that the bank tries to match terms with my fixed rate debt, and makes their money on the spread.
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cgh1999
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In reply to Malibu • 6:36p, 3/9/23
AG
Admiral Adama said:
cgh1999 said:
Liquidity is going to be a MAJOR issue for every bank. Every bank I know is desperate for deposits to fund their loans and/or bond portfolios.

It won't just impact highly leveraged banks, but also conservative banks. The cost of deposits for many banks exceeds the return on their securities portfolios. So, they'll either lose money on the negative arbitrage or sell securities to avoid that. Which will further devalue their securities.

Leveraged banks (high loan to deposit ratio) may fare better assuming their loan portfolio is primarily floating rate debt. They'll still make money as long as their loans perform.

Which brings us to door #3. Mega cap REiTs are turning the keys over. Which means the little guys are in trouble. Which means their lenders are going to struggle.

Which brings us to door #4. Quantitative easing and government stimulus. The two things that put us into an inflationary environment will be the tools used to bail out the Banks after the economy gets crushed.

Folks - our country is addicted to crack. I don't think we have the stomach to hit bottom and have a true recovery.

It seems like you're in the industry, so that can explain it like I'm five on the floating rate? My assumption was that the bank tries to match terms with my fixed rate debt, and makes their money on the spread.


If you have a fixed rate loan, banks are either:
A) gambling that their funding sources are going to stay lower than the loan rate. (More non-interest bearing deposits than money market/savings)
B) they will purchase hedges converting your fixed rate loans to floating
C) voodoo.
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Malibu
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In reply to cgh1999 • 6:42p, 3/9/23
It's almost always fixed for 5 to 7 years that converts to float. So they're buying a hedge?
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cgh1999
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In reply to Malibu • 6:56p, 3/9/23
AG
Admiral Adama said:
It's almost always fixed for 5 to 7 years that converts to float. So they're buying a hedge?

Maybe. Depends on their funding mix. If they have low cost deposits, then maybe not. What type of assets are you financing?
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Stat Monitor Repairman
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7:00p, 3/9/23
Coming soon to a theatre near you.
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Malibu
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In reply to cgh1999 • 7:33p, 3/9/23
All real estate, MFH.
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whytho987654
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7:49p, 3/9/23
Dot.com bubble 2.0, tech has proven to be all hype no delivery as seen by the newest "AI" released
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Pumpkinhead
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7:58p, 3/9/23
AG
Put themselves in a position where if the Fed started raising rates then they were going to get really squeezed.

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Sea Speed
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In reply to whytho987654 • 8:09p, 3/9/23
AG
whytho987654 said:
Dot.com bubble 2.0, tech has proven to be all hype no delivery as seen by the newest "AI" released


Idk man, the bots on this site fool f16 pretty well.
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cgh1999
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In reply to Detmersdislocatedshoulder • 8:15p, 3/9/23
AG
Detmersdislocatedshoulder said:
Admiral Adama said:
lucid said:
From https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanking-as-a-mess-unfolds/
Quote:
Becker said the bank has "ample liquidity" to support its clients "with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge."

Well, if there's a run on deposits above the FDIC limit caused by herd mentality panic rather than actual liquidity/solvency issues, he's right, they and any other bank facing that are screwed. That said, a mature bank raising equity to shore up their balance sheet screams run away.


for fun think about this the fdic has 1% on hand of the money it ensures and in the really fine print it says they can take 99 years to pay you back.

They'll just do what they have done before. Arranged marriages with federal guarantees.
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bmks270
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8:21p, 3/9/23
AG
A lot of people taking money out of SVB. It will be interesting to see what happens tomorrow.

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Adverse Event
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9:07a, 3/10/23
Fractional reserve banking

Chickens are home roosting.
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AggieUSMC
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9:44a, 3/10/23
AG
I'd never even heard of Sillicon Valley Bank before today.
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CDUB98
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9:47a, 3/10/23
AG
OH HELL!!

I missed this thread. Apologies for my other one.
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CDUB98
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9:53a, 3/10/23
AG
And now looking and finding I posted on it twice?

Good gawd. Guess I drank too much last night.
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fooz
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10:53a, 3/10/23
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C@LAg
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In reply to CDUB98 • 10:57a, 3/10/23
CDUB98 said:
And now looking and finding I posted on it twice?

Good gawd. Guess I drank too much last night.
the obvious solution is to ban CDUB.

everywhere.
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Ag87H2O
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In reply to fooz • 10:59a, 3/10/23
AG
fooz said:
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LMCane
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In reply to cgh1999 • 11:02a, 3/10/23
great post

would love to hear Joe Biden's analysis of bank arbitrage and how to fix this.
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cgh1999
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In reply to LMCane • 11:06a, 3/10/23
AG
LMCane said:
great post

would love to hear Joe Biden's analysis of bank arbitrage and how to fix this.

He can't pronounce arbitrage.
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sleepybeagle
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11:10a, 3/10/23
AG
I'm not a financial person... but when I hear politicians say...

"We need to raise the debt ceiling so that we can pay off our depts"

It sounds to me like...

"I'm getting a new Mastercard to pay off my Visa and American Express cards"

This can't end well.
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CDUB98
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In reply to sleepybeagle • 11:35a, 3/10/23
AG
sleepybeagle said:
I'm not a financial person... but when I hear politicians say...

"We need to raise the debt ceiling so that we can pay off our depts"

It sounds to me like...

"I'm getting a new Mastercard to pay off my Visa and American Express cards"

This can't end well.


Pretty much.

The need to service the old, low interest debt with new, high interest debt is part of this collapse at SVB and a micro example of what could happen to the US debt.
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