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SVB FINANCIAL CRISIS

13

Comments

  • We are in a golden age of longform journalism
  • I would say you are right, David, if you insert the word “online” between “long form” and “journalism.” The opposite is the case in print journalism.
  • edited March 2023
    Mr baseballfan question - it's a 4 hrs answer question

    Many analysts probably give quarterly opions about each bank or stock with each earnings. Schwab research has excellence summary of different equity or banks if you need research about these vehicles. If you buy bonds from these banks bond desks /analyst summaries give you guidelines and redflags to look for.

    But with a perfect storm like what we have now, any largeships can turnover and sink in an instant. So difficult to predict.

    I did not expect small/ mid cap companies like LCID RIVN BBBY to loose 95%s of stock values over past 14 months


    Also read that many small caps Pennies start ups in Silicon Valley/wineries have so much tied up in pacwest, sivb, and first republic.

    We are at holding patterns now. Not much new buys next 8 12 wks, Prob buy more UST SHY TLT, or short spy for now
  • I do have linked Schwab Bank account with my Schwab Brokerage account. I don't know too much specifically about the Schwab Bank, but Charles Schwab is #8 bank holding company (it is also included in annual Fed stress tests). Schwab Bank is also an important profit center for Schwab and it is integrally tied to its robo-advisors. So, I doubt that "Chuck" would let anything bad happen to it and have heaps of eggs on him. I am not worried. https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_United_States

    There is good coverage of Silvergate/SI, SVB Financial/SIVB and banks in the current Barron's:

    TRADER. The STOCK market has been hit by rising RATE expectations (after POWELL’s 2-day testimony) and falling BANKS/financials (after the failures of SI and SIVB). The problem faced by SIVB – a forced sale of Treasuries at huge loss – isn’t that unusual for banks facing runs (if there is no help from the Fed, FHLB, etc). These events may cause the FED to go slow on rate hikes. In a soft-landing scenario, the SP500 of 4,600 is possible.

    UP AND DOWN WALL STREET. Silicon Valley Bank/SIVB is the 2nd largest bank failure in history; it was in part due to losses on forced sale of a huge portfolio of Treasuries. The fed fund futures projections were all over – up after POWELL’s 2-day testimony, and then down on the failure of 2 CA banks, the crypto-friendly Silvergate/SI and the venture-capital (VC)-friendly SIVB. The financials were stressed (KRE, KBE, XLF); credit conditions have tightened. As SIVB lent to tech startups and others burning cash, the prospects of those companies became gloomy. The 2-yr fell 48 bps from Wednesday and similar moves were seen in the past during 10/1987 crash, Lehman failure in 09/2008, 9-11 terrorist attacks. In all this drama, the jobs report was a minor sideshow. But coming are the CPI (Tuesday) and PPI (Wednesday).

    All BANKS/FINANCIALS sold off last week (KRE, KBE, XLF). But most differ from SVB Financial/SIVB (and Silvergate/SI). The problem with SIVB was a large loss on huge forced-sale of available-for-sale (AFS, market-to-market) Treasuries, and its efforts for raising capital failed (and the Fed or the FHLB didn’t step in for the rescue). Most large banks have diversified businesses, are well capitalized and can tap multiple sources of funding. While rising RATES are generally good for banks, some overleveraged banks with poor quality loan-books get squeezed. DEPOSITS are also moving from banks into higher-rate Treasuries and money-market funds. SIVB was really a bank for venture-capitalists (VCs) who are sophisticated investors that can move large amounts of money (its sudden closure during the business hours may have been to limit that flight). In better times, SIVB just parked excess deposits into Treasuries that it had to sell suddenly at depressed prices (due to higher rates now). All banks now have large unrealized losses that may be hidden within their hold-to-maturity (HTM, not marked-to-market) portfolios – really, a permissible accounting trick. (In a bank run, the distinction between HTM and AFS basically disappears) Large banks also have tougher regulations and undergo annual stress-tests by the Fed. So, this general selloff offers opportunities in banks now – FITB, HBAN, JPM, KEY, MTB, PNC, RF, USB, etc.

    https://www.barrons.com/magazine?mod=BOL_TOPNAV

    See also open access LINK1 LINK2
  • Bloomberg's Authers and Matt Levine have very good pieces about what went wrong, but they require a subscription ( which I pay as their articles are very good)

    In summary, the tech industry in a low interest rate world had gobs of money, which they deposited at SVB. Most Banks make loans with their depositors money, and get paid back with interest, taking on credit risk; some loans are adjustable so interest return may go up, too.

    Most of SVB customers ( most of them companies with accounts far in excess of $250,000 FIDC limit) didn't need loans so SVB had to do something with the money. They bought Government bonds in a low interest rate world. (They could have used them to lend for mortgages but they didn't). SVB had far far more bonds on their books than loans compared to most banks, and almost all of those bonds were fixed rate.

    So SVB was exposed, not to credit risk ( from loans as a typical bank) but to interest rate risk. When interest rates shot up, and venture capital started to dry up the start ups needed their money so they started withdrawing their deposits.

    Eventually to meet this demand for cash, SVB had to sell the bonds which were worth a lot less than they paid for them. Then the panic started and they ran out of things to sell.

    Compared to a typical bank, SVB had far fewer loans and more Bonds, far more fixed rate bonds at low interest rates, a customer base all in one industry and therefore subjected to the same economic conditions all at the same time and far far more exposure to interest rate risk in a rapidly rising interest rate world.

    They also were just under the asset level that would have designated them "too big to fail" and required government stress testing. The limit was lower before Trump, and SVB growth would have pushed them past it and required stress testing. But Trump raised the limit dramatically because it was "too much regulation" and they were just under the new limit too.

    So here we have a train derailment in the banking world that could have been prevented.

    Hard to know how many other banks are in same shape. The impact on tech startups may be more profound.



  • edited March 2023
    HSFNX has long been run by one of the smartest managers investing in the financial/banking sector—David Ellison. While investors are selling every bank, it wouldn’t surprise me if he is finding some good opportunities in this environment. He studies balance sheets fairly closely. His fund will behave differently however from the category as this one only buys small companies while the rest mainly buy large ones. He also still runs a much less interesting large-cap fund, I think.
  • BTW

    "Chief Executive Officer Greg Becker sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure.

    The sale of 12,451 shares on Feb. 27 was the first time in more than a year that Becker had sold shares in parent company SVB Financial Group, according to regulatory filings. He filed the plan that allowed him to sell the shares on Jan. 26."
  • edited March 2023
    Interesting article describing SVB efforts to weaken bank regulations. It 2019 its CEO "was elected to serve on the board of directors at the Federal Reserve Bank of San Francisco. Becker left the board on Friday."

    https://www.levernews.com/svb-chief-pressed-lawmakers-to-weaken-bank-risk-regs/

    Article also appears in The Guardian.
  • @orage

    I think Bloomberg said that SVB was just under the $50 Billion limit when the campaign started to raise the limit to $250 Billion. In 12/2022 it was at $210 Billion, so he would probably have started another lobbying campaign to raise the limit again.

    Lots of both parties feeding at the trough, too.
  • edited March 2023

    I would say you are right, David, if you insert the word “online” between “long form” and “journalism.” The opposite is the case in print journalism.

    Hmm. I dunno. I read the New Yorker and NYRBooks in paper form, and I expect that if I took the Atlantic, WaPo, NYT, WSJ in paper form I would get the same as their online deep dives although with less fancy graphics and cool internal linking.

    Now, the two dozen or more superb second- and third-tier diggers, emptywheel, vice, lawfare, abovethelaw, much less their better-known peers (salon, slate, dailybeast, vox, politico, nymag, vf, nation, etc. etc.), I don't know which even appear on paper.

    It is overwhelming how much solid work is going on. Just today vox has a very smart rebuttal to / modulation of the Princeton guy's seemingly smart work on poverty measuring:
    https://www.vox.com/future-perfect/2023/3/10/23632910/poverty-official-supplemental-relative-absolute-measure-desmond

    I too am very guilty of ripping off these places, though do try and pay where I feel I can and should and the ones I read most. But I cheat, yes.

    I don't know how they do it and how their paid journalists stay afloat, actually,
  • SVB 5 year chart, if you don't mind using Google Finance
  • edited March 2023
    @davidrmoran I would say national news coverage is still decent in print, but local news is terrible and getting worse: https://news.northwestern.edu/stories/2022/06/newspapers-close-decline-in-local-journalism/
    The publications you mention on the print side--NYT, New Yorker, WSJ, etc.-- are the survivors of the worst period in print news history. They still do good work, but if you picked up a physical copy of one, you would notice how much thinner it is compared to what it was before Google, Amazon and content theft destroyed the print media model. I can remember when pubs had a real heft when you received them.

    On the digital side, the opposite is the case and there has been a flowering of interesting journalism online. A number of the pubs you mention I'm pretty sure are online only--Vox, Salon, Slate, Politico. Meanwhile, many print pubs you mentioned have more and different stories online.

    By the way, the death of reliable, nuanced trustworthy local news has grave implications for the politics of this nation as other than the intellectual hubs in large primarily coastal cities, many people get much of their information from local news.
  • @LewisBraham

    I agree with "Decent" but in general most news I think is a shadow of it's former self. I pay for anybody that asks for it because I want to support most of them.

    There are non traditional online sources that are doing a great job ( Judd at Popular information is a very good source) and I send them money to keep them alive and hopefully thriving.

    What has changed is the overall depth and quality.

    1) There is a huge difference between the available stories at the NYT and WaPo websites and what is in the physical paper. The stories seem to be the same, but the on the app or website you have to dig to find them. The New Yorker's three part articles are a thing of the past unfortunately.

    2) I cannot bear the inaccurate and scurrilous opinions at the WSJ, and do not pay them, but I firmly believe their general articles since Murdock took over have less detail and less content and are dumbed down

    3) The headline stories in Bloomberg are also weaker, but the columnists who seem less limited by space do an excellent job on specific topics they write about

    I read occasional Politico and etc, but do not have time to follow them.

  • "By the way, the death of reliable, nuanced trustworthy local news has grave implications for the politics of this nation as other than the intellectual hubs in large primarily coastal cities, many people get much of their information from local news."

    Bingo!

    And to that I'd add: "from local news and sources like Fox."
  • Smart people like Peter Thiel and other VCs got their money out of SVB early.

    "Peter Thiel's Founders Fund had no cash left in Silicon Valley Bank by Thursday as it began to unravel, Bloomberg reported."

    "Thiel's Founders Fund is thought to have propped up several startups that banked with SVB, which provided banking for nearly half of all US venture-backed startups, per its website. The fund had also called for its startups to withdraw their funds from the bank as well."

    "Bloomberg reported that VC funds Coatue Management, Union Square Ventures, and Founder Collective had all told their portfolio companies to pull their funds from SVB."

    https://www.businessinsider.com/peter-thiel-founders-fund-pulled-cash-svb-before-collapse-report-2023-3
  • I pay for subscriptions to the NYT's, Washington Post, New Yorker, Atlantic, Bloomberg, Barron's, Forbes, 2 local papers and I buy the weekend edition of the WSJ for a recap of the week in finance and to laugh at the editorials. I find that the New Yorker, Atlantic and Bloomberg have the best coverage but for completely different areas of focus.

    By the way, after I posted the Bloomberg link regarding SVB, there was a comment indicating that "people in general complaining about the “decline in quality journalism” while simultaneously seeking new and ever more ingenious ways to avoid paywalls so they can read and disseminate articles without subscribing to publications".

    Perhaps I'm being overly sensitive, but if that was directed to me, I have the ability to gift 8 articles a month with Bloomberg, and that link was gifted.
  • edited March 2023
    @PressmUP Certainly not directed specifically at you, but more to comments I see in general here and throughout the "Interwebs" quite often. In fact, in this particular thread, I see no remarks from you regarding journalism's declining quality.
  • edited March 2023
    Bloomberg's analysis is pretty good, though I hate that they constantly quote Summers. Their TV news is far and above better than CNBC and more analytical than sensational. (I pay for Bloomberg now that their rates are more reasonable.)

    I pay for the WaPo since it's also my local paper. WSJ is ok for general business news (even better if you get it at a good rate!) but I avoid their opinion pages, since much of it is cookoo-land, as those at the NYT. IMO Forbes is clickbait sensationalism (and is actually on my list of prohibited sources for my classes).

    Politico is good for political stuff ... their early morning Playbook newsletter starts my day here in DC and remains a solid briefing on the day.

    (sorry, didn't mean to contribute to the hijacking of this thread)
  • We subscribe to the print (and web) versions of: The Atlantic, The Economist, The Wall Street Journal, and The San Francisco Chronicle. Additionally we subscribe and pay for web versions of The Washington Post and The New York Times. We also support PBS: Newshour by itself is enough to merit that contribution, and in fact is our only broadcast news source.

    We also use web versions of NPR and The Associated Press, which do not charge for their services.

    I feel that we are doing our part to support decent news sources.
  • edited March 2023
    FDIC offers former SVB workers 45 days of employment (2pm EST, Saturday).
  • Long-end of the yield curve fell quite a lot on Friday as Treasury bonds rallied: https://ustreasuryyieldcurve.com/ Seems like this banking crisis is leading equity investors to get defensive, thinking the Fed will blink soon and cut rates. On the flip side, it's nice to see bonds acting as a hedge again, instead of both stocks and bond prices falling in tandem.
  • dtconroe said:

    As of today, SVB is still receiving an "A" rating, by the Bank Rating agencies. Those who depend on Rating agencies to identify the best and most healthy banks may want to think twice about how these rating agencies work

    sure enough.
    The regulators certainly were asleep. Probably there are not enough of them, anyhow, eh? Always the way.
  • @LewisBraham The common UST yields are in a chart at the BONDS thread.
  • Contagion is spreading.....next week's going to be intersting....

    SVB Fallout Spreads Around World From London to Singapore

    https://www.bloomberg.com/news/articles/2023-03-11/svb-fallout-spreads-around-the-world-as-uk-firms-plea-for-help?srnd=premium&leadSource=uverify+wall
  • edited March 2023
    i've been a rolling stone contributing-editor writer since 1998 and worked there in different capacities since 1982 and while many folks think rs sold out decades ago, it's shocking to me how truly awful it has become since it was bought by penske media a few years ago. it's mostly all phony opinion put-downs now, with real reporting hardly given a thought. but that's the pressure of the modern online world, too, where 'content' has to be produced at a frantic clip that does away with more fact-based stuff: there's just no time for it ... atho of course there are exceptions.

    as to the decline before penske. well, rs did some great work and had some great writers, the late hunter thompson, of course, but also matt taibi. me, i guess i'm part of the decline, what with writing cover stories about clay aiken and that snooki creature. then again, i was the last legit journalist to visit charlie manson in prison and write about him, though i got heat for that just being sensationalist junk, too. ain't no way to really win, not that i ever thought about it or cared.

    but man o man do i miss the old days, when i could write 10k-word pieces that showed up in print and seemed to go on forever (for better or worse, ha ha). while i'm still on the masthead, i haven't had a piece published there in a long time. my style of writing -- mainly black comedy of a sort -- no longer flies with the new bosses; plus, i can't do straight opinion and that's what most of it has become.

    i'm an ancient fart now, and the whole world has changed around me, and while i think it's all for the worse, so do most ancient farts. my way of dealing with it is to shrug and do something else. right now that means transcribing my great aunt's diaries from 1923, when she was traveling in post-WW1 Europe, and putting em online at this place called substack. feel free to check them out. she really was something else and a far better writer than me even at my so-called best. https://thekathidiaries.substack.com/
  • edited March 2023
    Re “painfully amusing … ” Spot-on @LewisBraham +1 Pogo couldn’t have said it better.

    Gosh - The appearance of posts questioning the safety of cash & short-term deposits is also painfully amusing and sounds a lot like those that popped-up on the board (Fund Alarm?) in the first few months of the Great Financial Crisis of ‘07-‘09. Obviously there are stark differences between the two episodes.

    From the network news sources, Etsy and Roku are a couple prominent businesses that had money at SVB. Kind of sounds like they’re not covered to the full extent by FDIC insurance. And several Etsy sellers appeared on air bemoaning that their payments for items sold weren’t being received. What say you J. Powell?
  • @linter

    I transcribed my grandfather's hand scribbled diaries from two business trips he took to Europe in 1938 and 1940

    He was in Vienna March 15, 1938 (Anschluss ) and arguing with the desk clerk at the Hotel Imperial about why they had given his room away to the Nazis when Hitler Goering etc marched right by them, not ten feet away.

    He couldn't fly out of Europe in 1940 and had to wait six weeks for a ship in Lisbon, along with hundreds of refugees and Gestapo He kept daily entries describing the faces and characters.

    They are both amazing documents

    These are accessible because they are limited in words and focused content. While today's world it seems like everyone puts there every thought online, how on earth is anybody going to find the gold among the dross in years to come?
  • edited March 2023
    @LewisBraham

    Why did you jump subjects? Local news never did longform journalism of the sort we're discussing, at least not small papers, even in their postwar heyday (to the 1990s or a bit before). Newsday maybe, if we call that 'local'.

    Roger about their demise and vulture-capital evisceration, sometimes in that order. It's horrible. J-prof Dan Kennedy is an expert and historian in the field (also a successor to me at an alt-weekly looooong ago):

    https://www.bostonglobe.com/2023/02/10/opinion/local-news-startups-are-overcoming-evils-corporate-chain-ownership/

    @linter, I don't know if you are involved in any way, but RS sure as hell has stepped up its investigative / political / digging game the last year or three. A real surprise.

    Your work on your great-aunt makes me think you might be at least a little interested in my slightly similar initiative (filmable bio-novel is the goal) of this grandfather:

    https://davidrmoran.wordpress.com/

    +++

    As I type, PK has just tweeted a smart succinct summary of SVB, 8 parts thus far, comparing it w Madoff affinity fraud in the crypto-bogo era:

    https://twitter.com/paulkrugman/status/1634908696806592518
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