Silicon Valley Bank - tits up

[P_Wop]

Well, SVB got greedy and played with Mortgage Backed Securities and Bonds (When will these buggers learn from history?). They tried to raise a few billion to cover the losses, caused a run on the bank and imploded it.

The FDIC has stepped in and seized the remaining assets for eventual distribution.

Since over half of Silicon Valley tech companies bank with SVB, including mine, and half the VCs too, there will be hell to pay. As a VC buddy remarked, "Forty years of technology business relationships evaporated in fourteen minutes."

I will be standing by the front door Monday morning to demand my balance, which I will then transfer to Bridge Bank.

Anyone else here bank with SVB?

 

[giegs]

 

[SloopJonB]

Mortgage Backed Securities?

They still exist? Has no-one learned a thing?

Securitizing debt - yeah, that'll work. You can tell people they're just like bonds.

Then you can sell them some mortgage default swaps.

 

[Olsonist]

When I first heard about this, my natural inclination was to think that they were somehow overexposed to some Bitcoin nonsense. But alas, no. It really was mortgage back securities, 2008 all over again.

SVB was (?) a simply massive Silicon Valley institution of more importance than any single and probably several VCs. They had and made a metric shitabular fuckton of money. This is a BIG thing and it may not be limited to SVB.

I've read the TLDRs and having too much money seems to have been the root of their problem. There's a country lyric, It's like too much money, there's no such thing. Well, no. There is. They had too much to loan and so invested it (too) aggressively. That aggression in MBSs then leveraged back on themselves when the Fed raised interest rates.

 

[Chris in Santa Cruz CA]

Bridge bank, wti, and avidbank, etc are shaking their heads.

 

[Chris in Santa Cruz CA]

There is no reason for a bank to fail. Buy low, sell high, manage risk. They have a federally mandated arbitrage spread. Idiotic.

 

[P_Wop]

For more on this stupid story, the CNN article is pretty good for a first take.

https://www.cnn.com/2023/03/10/investing/svb-bank/index.html

 

[Olsonist]

Bridge bank, wti, and avidbank, etc are shaking their heads.

I think Bridge Bank, a subsidiary of something something something, is tiny compared to SVB at $209B. Silicon Valley Bank was huge; 16th largest in the US. Ginormous. By comparison, a16z has $35B in assets under management.

 

[SloopJonB]

There is no reason for a bank to fail. Buy low, sell high, manage risk. They have a federally mandated arbitrage spread. Idiotic.

Trump could make casinos fail.

 

[SloopJonB]

I think Bridge Bank, a subsidiary of something something something, is tiny compared to SVB at $209B. Silicon Valley Bank was huge; 16th largest in the US. Ginormous. By comparison, a16z has $35B in assets under management.

$209 billion is not ginormous by big bank standards - the Canadian bank I worked for has more than a $Trillion more than that in assets - and it's not nearly the biggest here.

 

[Olsonist]

$209 billion is not ginormous by big bank standards - the Canadian bank I worked for has more than a $Trillion more than that in assets - and it's not nearly the biggest here.

There are 4,236 FDIC insured banks in the US.
SVB was larger than all but 15 of them.
The point of $209B was that it dwarfed the largest VC.
Yeah, there are larger banks. So the fuck what?
Last, if this MBS problem is common, size won't matter.

 

[Foreverslow]

I bet there will be a lot of hastily planned BoD meetings going on at banks this weekend. Ditto hedge funds and other financial institutions as everyone examines their risks and the risks of their counter parties. Best pick up your pastry platters early before they get scooped up by these leaches.

FDIC only covers first $250k. Many investors have a whole lot more in some of these institutions and are subject to lose it.

Seeing many of the BoD members of SVB have been unloading their private shares in their companies over the past couple weeks while saying nothing to their customers, regulators, or the public. Douche bags are jumping ship. Every rat for themself.

Then you have financial clown Jim Cramer who said "buy buy buy SVB" just 4 weeks ago on CNBC. Or Fortune magazine who had SVB as a top 10 bank 5 times. Media scrutiny is as clueless as the regulators. In the end reality always returns when the bill comes due.

As Warren Buffet likes to say "Only when the tide goes out do you discover who's been swimming naked." The abuses that seem to always happen with cheap money are about to be exposed with these rate hikes.

Monday should be a hoot.
Strap in lads, this is but the 1st inning of the big game.

 

[BeSafe]

The bank didn't do anything particularly wrong, other than maybe not diversify very well enough and be a bank with a disproportionate number of clients who are very cash flow sensitive. The underlying problem at SVB exists across ALL banks right now, to more or less degree.

For 10 years, the interest rates have been held artificially low to stimulate lending. When a bank takes in a deposit, what does it do with the money? Answer is of course, led in out. But what if there's not that much demand? What if people really don't need your loans, even at zero interest? Then the banks invest it in stuff. Usually, pretty safe stuff. Treasury bills and large scale securities. Stuff that doesn't pay that great of a return but can be easily resold to generate capital when necessary.

SVB didn't go bankrupt because the mortgage backed securities are bad. They went bankrupt because the mortgage backed securities are long term debt instruments that don't pay that much interest because they've been assembled over the last 10 years where interest rates are particularly low. ALL mortgage back securities are this way. AND SVB had a lot of them. Short sellers - who get paid to find such things - noticed that SVB didn't have enough variable interest rate stuff on their books and (if you subtracted out the MBS that are now illiquid assets) were not that well capitalized. They started pressing on them. Then the dominoes fell.

The fundamental problem is that banks have assets on their books that are now essentially worthless - no one else in the debt markets want them. They're worthless because ALL the banks have a bunch of them. This is the same as someone holding a bunch of 10-year CDs at 1% interest. If you tried to sell one of those today, you're going to pay not only the difference in interest but you're going to have to pay a penalty to someone just to take it and tie up THEIR capital.

Banks are sitting on over ONE TRILLION dollars worth of dead money tied up in long term securities. In 365 days, interest rates went from 1% to 5%. The global debt market is 300 TRILLION dollars. And the FED repriced the front end by a factor of 5! The securities all still have value - they just don't have value at the speed of banking. This isn't subprime. That's a different problem with certain banks - mostly credit unions actually - overexposed to car loans. That is similar to subprime. But SVB wasn't that.

What's the answer?

One of three things is going to happen next week:

1) The fed comes out and says 'our bad, we raised too fast to allow the debt market to adjust, we're dropping the rate by 0.5% and will go to whatever number is necessary to get through this period. "We're still going up but it took years to get here and it's going to take years to undo the distortions." That would scare off the short sellers. This is a stampede problem, not a capacity problem. FWIW, I think there is ZERO chance this is going to happen.

2) The Fed is going to start swapping paper again. They'll open a facility and take any security any bank wants to give them in exchange for newly printed T-Bills. The Fed, and ultimately the US taxpayer, will cover the interest difference and the FED balance sheet balloons another couple trillion. I think there's a 25% chance of this happening next week but is the ultimate long game. It was the solution to subprime, it's a solution here. Just to be clear, I think it's a bad one - but it's got precedent and masks culpability so I think it's inevitable.

3) The Fed does nothing and continues to hike according to plan to hold down inflation. Periodic bank runs will keep happening as any bank that happens to wander from the herd and sticks out in anyway 'searchable' by short sellers gets singled out and slaughtered, with the FDIC stepping in to clean up the mess. I think there's a 75% of this happening next week.

This sucks and I'm sorry for anyone who's gonna get smashed. But @Foreverslow is right, this is the first inning.

 

[Foreverslow]

not ready to let the banks off so easy.
Yes the low interest bonds are going to kill them.
Just like they have been killing savers for 15 years.
If you were born prior to 1995, you have no clue of normal interest rates (~5%). Most millennials do not have this experience.

BUT.. the other side is the banks have been containerizing dog shit loans, taking a fee up front, and selling them off to the Fed. They did not learn in 07-08. When the Fed stopped buying dog shit loans a year ago, the banks were stuck with their own shenanigans.

There are other issues too. The banks were only too happy to lend billions to dirt bags like Blackstone. Now those assholes are returning high rise towers worth several billion dollars each as folks are not coming back to the office after Covid.

a lot a sleazy shit has been going on, that NO ONE got jail time in 08. Where is Tan Man? We are all still paying for Country Wide under that criminal.

Look at Europe, CS, DB, and UBS have been involved in all kinds of illegal activities. Not to say the US banks are any better. JP Morgan has paid $33,000,000,000 in fines in the past 10 years. To the point one US District AG called them a criminal enterprise the other day.
So where is the RICO act and wall street MFers being perp walked on the 6 oclock news like Rudy did in the 80s? The minute they know that they are not going to get away with it, they will stop.
Instead they send monies to hacks in both parties to look the other way. Look at SBF as example A.

I was hoping in 08 for a bank to be refunded, that the BoD of a bank had to be dissolved and/or officers had to do hard time. Drum the mother fuckers out.
Instead the pricks took bonuses for 2 years saying they had to pay top dollar for talent.
Talent? The lazy fucks screwed the pooch and we all get to pay for it.

 

[veni vidi vici]

Another WOKE culture rather than business has gone tits up

 

[Windward]

How is the stock market going to react?

Don't ask Jim Cramer I guess...

 

[veni vidi vici]

How is the stock market going to react?

Don't ask Jim Cramer I guess...

Cramer is a shill for WS !

 

[badlatitude]

When they start an investigation of this, I suggest they start here:



Then here:

 

[giegs]

Low interest rates may prove to be like easy sex — tempting but possibly fatal

 

[Olsonist]

https://archive.is/DJqhL

I don't agree with his lesson at all, or rather its over generalization. That might be defensiveness. But I don't see crypto as Silicon Valley. I see it as FinTech and basically Wall Street.