SVB Failed! Silicon Valley Bank.

[AzScorpion]

question is when will it hit bottom ? seems more declines in store, the past few months have seen numerous short lived bear market rallies. I did well buying Citigroup in 2009 - but had advice from a relative in the financial industry that provided what proved to be good advice.

Good question? At least now these bond traders are hopefully out of it and the markets can somewhat stabilize themselves now. It seems these bond traders were delaying the inevitable by trying to convince everyone the market's were still safe even with rising interest rates. The problem is many don't understand bonds and how higher rates can effect them UNLESS you hold them to full maturity/par. I'll admit I'd didn't until about a year ago and even know don't claim to know everything there is. My take is stick with good rated corporate bonds that you can hold until they're mature. Most are paying good dividends and good YTM's if you understand how they work and don't need that money right away.

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[CB750F]

Good question? At least now these bond traders are hopefully out of it and the markets can somewhat stabilize themselves now. It seems these bond traders were delaying the inevitable by trying to convince everyone the market's were still safe even with rising interest rates. The problem is many don't understand bonds and how higher rates can effect them UNLESS you hold them to full maturity/par. I'll admit I'd didn't until about a year ago and even know don't claim to know everything there is. My take is stick with good rated corporate bonds that you can hold until they're mature. Most are paying good dividends and good YTM's if you understand how they work and don't need that money right away.

We have contagion on both side of the Atlantic unlike 2008 where
is was MBS in USA. We can see S&P at 3600 or 3400 with a save for a while but the damage is done. Remember, as you mentioned before, debt is astronomical. This will need to be purged. The good old capitalist way(recession or depression).
I'm not even sure about corporate debt/bonds, as they need to
refinance at much higher rates now. There are many zombi corps that gorged on 0%, they will fail with much less liquidity availability. This will/could drag down all corporate bonds. I hate to say it but government bonds are the best, as they can print & unfortunately cause even more inflation. Cash flow will become an issue with corporation, sales will drop, layoff then the bottom.
Then again, maybe unicorns & skittles....

 

[AzScorpion]

This is probably the best article that I've read so far (seems unbiased too) that lays out the patch SVB took and why it failed. It's a long read but a lot of good info that is well written.


https://www.yahoo.com/finance/news/economist-won-nobel-bank-runs-160025143.html

What make banks work, and how SVB broke the mold


As Diamond notes, it’s crucial to understand the role of the two classes of investments on SVB’s balance sheet. The first grouping is called Available for Sale, or AFS. It consists of securities in the trading account banks are free to sell at any time. All bonds in the AFS designation must be “marked to market” at the end of each quarter. If a bank is holding Treasuries it bought early last year at extremely low yields, and rates jump, the prices of those bonds fall sharply, hitting the bank’s capital. The second investment category is Held to Maturity, or HTM. It comprises the fixed income securities that the bank intend to keep on its balance sheet until they’re redeemed at their full par value. Once each quarter, banks can shift securities between AFS and HTM—if they need to replenish their equity, they’ll transfer bonds from the long-term hold to the trading account. But if a bank transfers HTM securities that have an unrealized loss, that would raise liquidity, but hit their book equity even harder. This is a quandary SVB faced before the deluge.

At the close of 2022, SVB counted $26 billion in AFS, virtually all in Treasuries and “agency” mortgaged backed securities issued mainly by GSE’s Fannie Mae and Freddie Mac. As Diamond points out, those AFS bonds were all highly-liquid; they’d easily sell at full market price, and stood no danger is suffering a haircut if dumped fast. SVB’s balance sheet also contained $91 billion in HTM bonds, of which over 90% sat in agency-issued mortgage securities that also benefit from a deep, active market. Its $74 billion credit portfolio was highly concentrated, consisting primarily of loans to tech startups, as well as their founders and managers. Those companies and Silicon Valley bigwigs also were also their main depositors. It’s been reported, in fact, that SVB often placed covenants in its loan agreements requiring that a borrower keep its deposits at the bank.


SVB mismatched its investments to the deposits funding them


The bonds in AFS, the ones SVB would need to sell in an emergency, were generating a puny yield of just 1.79%, as of mid-March. Clearly, it had purchased most of those securities well before rates started spiking big time in the spring of 2022. The average maturity on the AFS portfolio was a substantial 3.6 years. At the end of 2022, nearly 90% of the HTM loans carried maturities of over ten years, and the return on that bedrock portfolio was just 1.63%—once again, SVB had bought almost all those bonds way before rates exploded. Its loan portfolio was also garnering low returns of well under 4% after provisions for credit losses.

“Their investments were pretty long-term, and they were generating very low yields,” says Diamond. “They must have figured that scenario would work fine if every depositor stayed forever, and they kept accepting zero rates on checking accounts and sub 1% rates on money market funds. In that case, they could hold their bonds to maturity and get full value.” It’s clear that SVB’s strategy to “go out on the yield curve” to garner an extra 0.5% say, on a 5 year versus a 1-year Treasury, was a mistake. The crunch came in 2022, when yields on 5-year Treasuries competing with the ones they bought a just a year before jumped from under 1% at the start of the year to the mid-4% range by fall. Suddenly, SVB was forced to pay 4.5% on savings accounts, a multiple of what it offered a year before.

 

[CB750F]

Wondering how low/when it could go....
Here are several awesome rallies in the last 12 yrs.
During these rallies, some/most people thought the worst was over, I'm sure.

 

[TJC]

question is when will it hit bottom ?

It will hit bottom when they decide it will... and that decision was made before this began.

​

"In politics (and government), nothing happens by accident. If it happens, you can bet it was planned that way." (This quote is actively being expunged - like so much of our history)​

- FDR​

​

"We hang the petty thieves and appoint the great ones to public office."​

- Aesop ~580BC​

If it happens, it was planned to happen, and the best any of us can hope for, is to successfully evade the dancing elephant's feet.

​

"There's a club, and we ain't in it"​

- George Carlin (a great video... he says it best! I am mildly surprised they let him live)​

 

[dtech]

Great article mostly devoid of controversial and unfounded accusations, my takeway is that the bank was badly mismanaged, roll back of regulations did play a role but irrespective of that those paid to monitor the banks didn't do their job and stupidly thought interest rates would forever stay close to zero % . The pandemic was the catalyst for some of this and blew away the smoke and mirrors of perpetuating bad monetary policy by the fed. Oh look how good the economy is doing just because I am keeping interest rates low and the presses printing money and of course the truest litmus test - look the stock market keeps going up.

As to Barney Frank being on the board and other board members I suspect they just showed up to the qtrly meetings, rubber stamped the CEOs (mis) management and collected their pay. Barney was likely just a name to dupe investors that the bank followed sound principles

Larger public corporations benefit from institutional investors actively watching the direction and makeup of the board members and will vote to oust incompetency .

 

[TJC]

Corporate's gorged themselves on 0% debt and artificially inflated their stock prices by buying them back just before the quarterly reports. All those corporate execs know how to milk the system for higher bonus checks based upon rising stock prices.

But when the inevitable interest rate rise occurs, and those short term loans need to be rolled over, the interest rate debt trap catches up to them.

I learned a long time ago that the stock market is not rational. The only possible way to even come close to sustainably making money on stocks is to watch the Fed .... and have a very fast link into the market so you get in ahead of the big boys. That means you need a high powered datacenter within feet of the exchange computer systems. Nano seconds count. (Or be a member of Congress, who can legally trade using insider knowledge.)

I've tracked and caught brokers hedging my positions and limit stops, shaking the tree, and forcing my sell, by placing a big sell, immediately cancelling it, and then immediately buying at the low. This was my broker using their inside knowledge to make money off my position. It's called insider trading and they have been doing it for scores of years.

I've talked to corporate 401K investors, and it is common knowledge that just before corporates deposit their monthly 401K funds into the brokers management system, the brokers force the affected funds and stock prices higher to steal from the 401K deposits. They know it is going on, but nothing is done to stop it. I suspect both corporates are in on the scheme.

I've got more horror stories, but suffice it to say. The brokers are experts at separating you from your money.

Don't get me started on money or wealth managers... No risk and all reward. They can't lose... only you can... and will...

 

[dtech]

Corporate's gorged themselves on 0% debt and artificially inflated their stock prices by buying them back just before the quarterly reports. All those corporate execs know how to milk the system for higher bonus checks based upon rising stock prices.

But when the inevitable interest rate rise occurs, and those short term loans need to be rolled over, the interest rate debt trap catches up to them.

I learned a long time ago that the stock market is not rational. The only possible way to even come close to sustainably making money on stocks is to watch the Fed.... and have a very fast link into the market so you get in ahead of the big boys. That means you need a high powered datacenter within feet of the exchange computer systems. Nano seconds count.

I've tracked and caught brokers hedging my positions and limit stops, shaking the tree, and forcing my sell, by placing a big sell, immediately cancelling it, and then immediately buying at the low. This was my broker using their inside knowledge to make money off my position. It's called insider trading and they have been doing it for scores of years.

I've talked to corporate 401K investors, and it is common knowledge that just before corporates deposit their monthly 401K funds into the brokers management system, the brokers force the affected funds and stock prices higher to steal from the 401K deposits. They know it is going on, but nothing is done to stop it. I suspect both corporates are in on the scheme.

I've got more horror stories, but suffice it to say. The brokers are experts at separating you from your money.

Don't get me started on money or wealth managers... No risk and all reward. They can't lose... only you can... and will...

Yes this is one of the reasons avg CEO of large companies made nearly $28m in 2021 - and just 399 times more than the average earnings of employees .

 

[TXRangerTim]

CA governor Newsom pushed the white house to bail out SVB. The three vineyards of Newsom are listed as clients of SVB.

 

[AzScorpion]

Banks are looking for cash right now. On Fidelity I've seen a huge increase of 5%+ non callable CD's yesterday and today ranging from 6 months to 60 months. CDs are priced 7-10 days in advance so well before the SVB mess. They're not lasting to long either especially the ones that are 4-5 year CD's. People want to lock up their money in long term fixed incomes right now.

 

[dtech]

I wince at the tough talking statements " we will find whoever is responsible and hold them accountable. " dude look into the room where you hold cabinet meetings. These Financials guys are rarely held accountable because most are smart, calculating and 1 step ahead ,that crypto dude being an exception. I agree with Dave and tjc, yellen should be booted and mark to market never lifted. These banks flew under the radar and passed tests because the regulatory tests weren't changed to stay current , some smart people see these risks but unfortunately they rarely work for the gov. All the investment risk data from banks is available to the gov , they are paid to assess and act in the public interest, if they fail fire them. BTW I went to college with a guy who spent his entire career as a fed bank examiner, collects a sizeable pension but he said it was horribly boring job.

 

[CB750F]

Tony, your right, we are fleeced at the broker level. How this is known & nothing done to stop the theft speak volumes!
Looks like groundhog day again.

 

[AzScorpion]

What do you all think? Smoke and mirrors or truth?

FDIC wants buyer of Signature Bank to give up crypto business, report says

https://www.yahoo.com/finance/news/fdic-wants-buyer-signature-bank-132015683.html

Signature Bank was one of the dwindling financial options for the U.S. crypto industry, even after New York regulators took over the bank and placed it into Federal Deposit Insurance Corporation receivership over the weekend.

Now, as potential buyers circle the failed lender, the FDIC is mandating that they agree to give up the bank’s crypto business, according to a Wednesday report from Reuters.

When the crypto-friendly Silvergate Bank collapsed last week, many crypto firms fled to Signature—an exodus that caused some of Signature’s more traditional clients to find safer options, according to a Wall Street Journalreport from Wednesday.

Then, when the New York Department of Financial Services took possession of Signature on Sunday, bank board member Barney Frank—a former representative who helped design the banking reform Dodd-Frank legislation—gave a series of interviews in which he blamed the takeover on Signature’s crypto exposure. A DFS spokesperson denied the allegations, telling Fortunethat the bank failed to provide reliable and consistent data, creating a “significant crisis of confidence in the bank’s leadership.”

 

[TJC]

If the news is coming from the gov or major media - smoke and mirrors... half truths.

How do you know a politician is lying? His mouth is moving!

 

[AzScorpion]

If the news is coming from the gov or major media - smoke and mirrors... half truths.

How do you know a politician is lying? His mouth is moving!

Yeah, it was a rhetorical question. lol

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