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Markets still falling like whoa


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1 hour ago, Incredulity said:

I’ve seen estimates of high 90s %.  It appears the question is how long that takes.

I am sure Yellen is having some succinct conversations with the major banks about taking this in whole or pieces.

I think there’s a chance Janet is not as upset as you would think. Ackman has some points here about the fallout.

 

 

1-Janet is probably fine with more consolidation and centralization of bank deposits. 
 

2-If this creates new demand for treasuries, then that’s a plus for the treasury dept. 

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1.) fuck Bill Ackman always and forever. Gigantic piece of shit.

2.) I don’t think Janet is upset.  I think any rational person understands the downline risk of the perception that cash deposits in banks over 250k can go poof is untenable.  If they have a reasonable plan they can sell by Monday morning I don’t think this spreads much.  If everyone is standing around with their dick in their hand on Monday it will be a much bigger problem.  So I hope/think/assume she is arm twisting the big boys to buck up.

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Just now, Neonmoon said:

Ackerman wants the government to cover private management stupidity. He thinks by doing so, it protects the customers, which in fact only reinforces bad management, thus hurting the customers.

Is your position a company with 500,000,000 in cash (Roku) should have 2000 individual bank accounts?

or are you still of the perception that management of SVB is getting bailed out?

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5 minutes ago, Blotto said:

He's an all-time, hall of fame member of team #SmellsHisOwnFarts. Why anybody gives a fuck what that stooge says is beyond me. 

He talks his book, which if youre an investor is what you expect him to do.  Same goes whether you're invested with Carl Eyecan, Pau Twodoor Jones, or George Sorrows

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1 minute ago, Hefeweizen said:

It’s going to get ugly.  Unfortunately nothing I can share.

Same.   SVB has had its issues in the past. They kinda flubbed PPP for instance.  But they’ve stood behind and been flexible with distressed borrowers in the past. They are a predictable, reliable, and reasonable lender in the venture space all the way up to LBOs.  

That certain influential VCs stabbed them in the back like this, and that is what happened, is fucking devastating and those same VCs have had their portfolio saved by SVB over and over again. 
 

 

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1 hour ago, Hefeweizen said:

It’s going to get ugly.  Unfortunately nothing I can share.

Curious on the fallout. I know little on specifics, but this seems like a liquidity problem and not a big asset problem. If the VC groups didn't scare all their clients at once it wouldn't be an issue at all would it?

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I’m onboard with the govt bailing out the large depositors but they have to take enough of a haircut so that the US taxpayers do not lose on the deal. I suppose if a depositor doesn’t want to join a bailout, they can wait out to see what is left over. I know people may want to see VCs and tech bros lose out but they didn’t do anything but trust a bank and regulators to keep their deposits safe.

as for the bank officers and bank shareholders? Nothing. No bailout for them.

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16 minutes ago, Nice Guy Eddie said:

I’m onboard with the govt bailing out the large depositors but they have to take enough of a haircut so that the US taxpayers do not lose on the deal. I suppose if a depositor doesn’t want to join a bailout, they can wait out to see what is left over. I know people may want to see VCs and tech bros lose out but they didn’t do anything but trust a bank and regulators to keep their deposits safe.

as for the bank officers and bank shareholders? Nothing. No bailout for them.

I mean the VCs directly caused the run on SVB. They started everything.

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22 minutes ago, MonkeyDoughnut said:

I mean the VCs directly caused the run on SVB. They started everything.

The run was caused by poor risk mgmt by the bank. A customer joining a bank run is a reasonable act. Yes you increase the problem but we all operate on self interest. 

don’t get me wrong. If someone kept the majority of their company’s funds in a single or handful of accounts, they also did a poor job of risk mgmt.

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Thiel deserves scrutiny of his trades after prompting the run.

Again, uninsured depositors will be made whole or close to whole. SVB had assets (poorly structured for duration risk). FDIC will make funds available for insured account holders early next week. Uninsured accounts will gain access incrementally as assets are secured. That could be early next week as well. The FDIC is not expected any tax dollars on this bank failure. 

The sticky wicket for startups will access to ongoing credit. SVB understood the game and a JPMorgan-type will not. 

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1 hour ago, Nice Guy Eddie said:

I’m onboard with the govt bailing out the large depositors but they have to take enough of a haircut so that the US taxpayers do not lose on the deal. I suppose if a depositor doesn’t want to join a bailout, they can wait out to see what is left over. I know people may want to see VCs and tech bros lose out but they didn’t do anything but trust a bank and regulators to keep their deposits safe.

as for the bank officers and bank shareholders? Nothing. No bailout for them.

The VC firms started the run on the bank, and they’re also likely the biggest shareholders.  Fuck them in the neck. 

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10 minutes ago, MonkeyDoughnut said:

Curious on the fallout. I know little on specifics, but this seems like a liquidity problem and not a big asset problem. If the VC groups didn't scare all their clients at once it wouldn't be an issue at all would it?

Correct, this was a liquidity failure due to a deposit run, plain and simple. If the deposit volume on Tuesday would have remained stable, this is a perfectly solvent bank, albeit certainly needing a relatively manageable capital raise for regulatory compliance purposes. Many of the posts above accurately identify issues that contributed to the failure, but none of them individually caused it.

TL/DR me if I'm getting a little/really wonky here but after taking a few minutes to peek at their call report, this is how I view a few of these issues:

 

- Outsized Treasuries position and long portfolio duration / funding mismatch:

Just to be precise, "Treasuries" were not a large part of the portfolio (14% of assets vs comparable peer banks 23%). They had a greater proportion of Agency MBS (55% vs 36%). Overall though you could call it more of a bond bank, loans 33% of assets, securities 58%. However, the size of the security position doesn't particularly matter here. Most of the position was HTM which doesn't flow to AOCI and although the AFS portion does, it only affects the stated total equity position rather than the regulatory capital position that must be maintained. There is a big difference between equity and regulatory capital and that is a very good thing. This is why you hear that most banks are in the same boat when it comes to unrealized AOCI losses. It is absolutely true, and there are a bunch with a worse AOCI position than SVB had. Right now there are dozens of banks nationwide which report a negative equity position and, while they are probably getting a stern taking-to from regulators during an exam, they are most likely perfectly solvent.

The reportedly long duration of the portfolio (I have not looked at the IRR/sensitivity financial data, just going off what is in media) simply impacts the size of the unrealized loss in AOCI. Longer duration = greater downside risk when rates rise, finance 101. So yes, the $1.8B loss on the sale of securities -may- have been larger than with a shorter tenor portfolio, but again, this was not a major contributor to failure at all.

- Failure to raise capital

CNN had an article out yesterday headlined: Silicon Valley Bank collapses after failing to raise capital. This is misleading at best or flat out wrong. SVB attempted to raise $2.2B to plug the $1.8B from the loss on securities. The bank's capital position was generally fine prior to the loss, leverage capital 8% vs peer 8.76%, and risk-based capital ratios were higher than peer because of the higher proportion of securities vs loans on balance sheet. They had almost $17.5B capital prior to the $1.8B loss, so yeah, the loss certainly made an impact but they would still be considered "Adequately Capitalized" (versus "Well Capitalized") by regulators without raising additional capital. Adequately Capitalized banks absent other major issues are not getting closed, period.

- Customer base is niche

This did not cause it but I think when it's all said and done, this will be deemed a major contributor to what historians 50 years from now will deem the most efficient bank run in the history of western civilization. I'm being a little facetious there but also not really. What we saw yesterday should not happen. $42B deposit outflow and resultant -$958M cash position in one day is worthy of Congressional investigation in my opinion, and I have zero axes to grind. Previous posters showed the data on deposit size % which is spot on. Prudential regulators are going to have to reassess the entire playbook on liquidity management after this. Bank failures occur mostly due to liquidity, but it happens over weeks and months and quarters which gives the bank and regulators time to find buyers for assets, etc. Technology, an astute and influential client base, and a huge average relationship balance meant that this could happen with unprecedented speed.

 

I really dislike the "perfect storm" label when describing root causes of major disasters but here I have no other choice to label this as such. What a mess, and the ashes sifting will last for years to come. So many bad decisions - why announce capital raise right after the security sale filing? Why do it on the day of SG announcement, why were so many tech titans calling for withdrawals? I'm a simple outside observer with no answers but I hope they start coming.

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2 hours ago, washparkhorn said:

Thiel deserves scrutiny of his trades after prompting the run.

Again, uninsured depositors will be made whole or close to whole. SVB had assets (poorly structured for duration risk). FDIC will make funds available for insured account holders early next week. Uninsured accounts will gain access incrementally as assets are secured. That could be early next week as well. The FDIC is not expected any tax dollars on this bank failure. 

The sticky wicket for startups will access to ongoing credit. SVB understood the game and a JPMorgan-type will not. 

This.  And it's why things got a little scary when the other players in the market like Bridge, Signature, and PacWest (who acquired Square1) started taking shrapnel .  These banks have found a way to help the high growth/pre-profit tech companies as they try to hit exit velocity.  JPM, Wells Fargo, Citi, etc do not ever lend to these companies.  They should, but they don't.  They all have dudes running around the Valley and Austin saying they are trying to connect to emerging companies, but they just want the founders for their wealth management teams and then the exit work.   

It's really important to the venture backed model that things stabilize and these other banks, who were all inferior to SVB in market share, come out of this still able to lend to Series A and B companies that are pre positive EBITDA. 

And I agree Thiel deserves scrutiny.  I am not a bankruptcy attorney or any kind of litigator, but if there is any potential claim against the VCs that initially started this run, I hope it's made.  Would love to see the emails from Thursday morning come out in discovery.  I am doubtful, though.  

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1 minute ago, A-Tex Devil said:

I mean if no high growth pre-profitable company could get bank debt we’d be in a really boring fucking place right now innovation-wise
 

It is quite obviously going to get way worse for those companies before it gets better.

Especially if this situation drags on.  It will be a while before someone fills the SVB niche for “founders” and VCs.

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9 minutes ago, wackawacka said:

I would expect 2 or 3 regional banks to also fail after this...all near to SVB customer base.

Yes.  The problem right now is ensuring that there isn’t a loss of confidence in banking.  Everyone forgets how fragile confidence can be.  Nassim Taleb will probably get a chance to write another great couple of books.

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2 hours ago, washparkhorn said:

... 
This isn’t existential risk unless someone triggers a bank run. ...

Now that people are waking up to the reality of risk in the banking system, we're facing a version of the Prisoners Dilema.  Folks will act or not according to their own self interest and risk levels.

FDIC limits are too low for businesses that need to carry millions in cash.  SVB carries real lessons for risk mgmt and govco response will likely inform decision making.

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