The collapse of Silicon Valley Bank

[farmerge]

HSBC buys Silicon Valley Bank's UK business

HSBC Holdings PLC (LSE:HSBA) announced on Monday that its UK subsidiary, HSBC UK Bank, is acquiring Silicon Valley Bank UK for £1. Reports over the weekend...

www.proactiveinvestors.co.uk

What is the debt that they have bought for that quid?

 

[divs4ever]

i saw hints of another US troubled bank Freedom Republic or similar

will be watching to see what gets bailed ( everyone or only selected folks )

am also watching for international ripples ( into various 'start-up companies ' )

 

[divs4ever]

What is the debt that they have bought for that quid?

one pound ( quid ) doesn't sound confidence-building for *** there were a number of interested parties battling to buy the business ***

were the others offering less than one pound , or was there some politics involved ??

will be watching HBSC in case they swallowed a poison pill

 

[Dona Ferentes]

As doing the rounds of the "I told you so" brigade

 

[Value Collector]

Classic bank run.

Yep, SVB made the mistake of taking large short term deposits from a relatively small customer base, and during the last couple of years bought long dated government bonds at low interest rates, and the short term value of those bonds has fallen due to rising interest rates.

It’s a perfectly sound strategy, provided all the depositors don’t want their cash back at the same time in the short term.

In a couple of years it wouldn’t have been an issue as the bond prices would have corrected as the dates got shorter.

 

[Dona Ferentes]

Yep, SVB made the mistake of taking large short term deposits from a relatively small customer base, and during the last couple of years bought long dated government bonds at low interest rates, and the short term value of those bonds has fallen due to rising interest rates.

Not only bonds, but MBS. Check out the numbers. And the average yields.

As Ducati posted elsewhere, with risk free T bills in the high 4s, so why would a depositor leave money where the interest rate can only possibly be in the 1's.?

So, by the Thursday, SVB’s clients tried to withdraw $42 billion, which was about one quarter of its total deposits . Gonski.

 

[Value Collector]

Not only bonds, but MBS. Check out the numbers. And the average yields.
View attachment 154316
As Ducati posted elsewhere, with risk free T bills in the high 4s, so why would a depositor leave money where the interest rate can only possibly be in the 1's.?

So, by the Thursday, SVB’s clients tried to withdraw $42 billion, which was about one quarter of its total deposits . Gonski.

Yep, most T-bills and MBS 12 months ago would have been trading at coupon rates much lower than what’s available today, even I bought some 3 yr debt notes last year at 2.9% that would sell today at 6%. Provided the holder isn’t in a position to be a forced seller they will do ok, but if you have to sell them early you take a capital hit.

institutions with more patient capital won’t have an issue holding these longer dated securities, but obviously SVB has found their capital base is not as patient as they believed them to be.

 

[waterbottle]

Yep, most T-bills and MBS 12 months ago would have been trading at coupon rates much lower than what’s available today, even I bought some 3 yr debt notes last year at 2.9% that would sell today at 6%. Provided the holder isn’t in a position to be a forced seller they will do ok, but if you have to sell them early you take a capital hit.

institutions with more patient capital won’t have an issue holding these longer dated securities, but obviously SVB has found their capital base is not as patient as they believed them to be.

Are SVB depositors any different to other depositors?
All depositors would seek the highest rate possible. So if SVB (and other banks) can't pay then depositors are going to move.

 

[moXJO]

Are SVB depositors any different to other depositors?
All depositors would seek the highest rate possible. So if SVB (and other banks) can't pay then depositors are going to move.

Hence the problem of rapid rate rises.
There was laziness in the system that's now getting its ar5e kicked.

 

[Value Collector]

Are SVB depositors any different to other depositors?
All depositors would seek the highest rate possible. So if SVB (and other banks) can't pay then depositors are going to move.

Like most banks, I assume SVB has many types of deposit holding accounts ranging from 0% interest for transaction accounts through to higher interest term deposits etc.

——————————

The whole business model of commercial banks is accumulating deposits at lower interest rates by providing security and flexibility to depositors and putting that cash to work at higher rates by buying or creating higher interest rate securities with less flexibility and more risk

The bank share holders put their capital at risk as a buffer in the system and in return earn money on the interest rate spread.

 

[Belli]

Able to pay their US employees for one.

Major financial institutions generally wouldn't lend to start ups is another. My thinking , and really this should be in another thread, is possibly SVB took on too much because of this.

Oddly the CEO and two of the Directors (former Republication staffers) supported the watering down of the Dodds-Frank Act so didn't have to undertake annual stress testing like the major banks do.

A recent article from Forbes on the history of the Dodds-Frank Act.

How The Dodd-Frank Act Protects Your Money

In the years that followed passage of the Dodd-Frank Act, the U.S. fully recovered from the economic crisis that inspired its creation and enjoyed the longest bull market in history. The financial crisis of 2007-2008 was one of the worst economic disasters in modern U.S. history, and it was in la

www.forbes.com

Some matters I came across after reading a few sites. I can get why a number of tech companies, including Australian/NZ based ones, would bank with SVB if majors would not deal with them. It makes sense to me for Venture capital companies to also do business with SVB on that basis. And if the flavour is tech, I see a reason why ordinary depositors would also bank with SVB. Provide support your favourite team.

We are strange beasts.

 

[frugal.rock]

 

[frugal.rock]

SVB employees were paid bonuses just hours before it was shut down. Hurrah.

 

[Value Collector]

SVB employees were paid bonuses just hours before it was shut down. Hurrah.

Unfortunately for share holders, those payments were for work completed in prior years, the timing is almost irrelevant, because any payments owed to employees out rank shareholders in the wind up of the company, so would be paid anyway.

 

[basilio]

First Republic Bank is the latest to be in trouble. This is not looking good.

First Republic Bank shares plunge days after three other US banks collapse​

Another bank is teetering on the edge of ruin just days after three massive banking institutions fell like dominoes, sending shockwaves across the world.

Alex Turner-Cohen
@AlexTurnerCohen

3 min read
March 14, 2023 - 9:23AM

​

Aussie companies sucked into bank collapse​

‘Extraordinary’ decision after bank collapse​

Another American bank collapses​

Customers and investors appear to have lost faith in another US bank, just days after three banks sensationally collapsed in a move that sent shockwaves around the world.

Overnight, fears mounted for a regional bank based in San Francisco, First Republic Bank, with its shares tanking drastically.
First Republic Bank’s shares fell by 61.8 per cent on Monday, local time. The week before, its shares had been down 33 per cent.
At the time of writing, the bank had recovered slightly, down 50.55 per cent in the past 24 hours, currently trading at $US31.21 ($A46.81) per share, according to the New York Stock Exchange.

It follows a similar pattern of several other failed banks in recent days, with stocks plunging, leading to a liquidity crunch, sending the market into a meltdown.

Investors and customers are also panicked because a whopping 70 per cent of the deposits held with First Republic Bank are uninsured.
That’s above the industry norm, with medium-sized banks usually having around 55 per cent uninsured, Bank of America said in a note.
\https://www.news.com.au/finance/business/banking/first-republic-bank-shares-plunge-days-after-three-other-us-banks-collapse/news-story/8dc37270b7e41ff629e63b7fac4b681

 

[wayneL]

Bail-ineth approacheth.

I hope you are all satisfied with your brand-new shareholding in a worthless bank?

 

[The Triangle]

 

[divs4ever]

sad but true

luckily the Dems are in power and they stand for the average working Joe ( Biden )

 

[The Triangle]

Classic bank run.

Classic corporate skullduggery.

SVB had no risk chief through much of 2022, proxy statement shows

Last year, Silicon Valley Bank’s risk committee doubled the number of meetings it held, suggesting board-level concern over the bank’s financial position.

www.bankingdive.com

“Legitimate questions … swirl about CEO Greg Becker selling $3.6 million of SVB stock just days before the proxy filing and capital raise disclosure,” said Barsky. “Other insider trades show the current CFO and CMO selling shares too. What did these executives and others anticipate? When did the insider selling really begin?”

Silicon Valley Bank crash is a red flag on rate risk

Investors need to look harder at vulnerabilities across the big banking markets

www.ft.com

Banks exist to take and manage liquidity, interest rate and credit risks. It is therefore stunning to hear that a US bank has just failed because it invested much of its swollen base of deposits, mostly redeemable at demand, into a long-term, held-to-maturity bond portfolio without any interest rate hedge.

Disastrous Risk Management Is Not the Fed's Fault | Investing.com

Market Analysis by covering: United States 10-Year. Read 's Market Analysis on Investing.com

www.investing.com

This means SVB was not applying basic risk management practices and exposing its investors and depositors to a gigantic amount of risk.

 

[Knobby22]

Classic corporate skullduggery.

SVB had no risk chief through much of 2022, proxy statement shows

Last year, Silicon Valley Bank’s risk committee doubled the number of meetings it held, suggesting board-level concern over the bank’s financial position.

www.bankingdive.com

“Legitimate questions … swirl about CEO Greg Becker selling $3.6 million of SVB stock just days before the proxy filing and capital raise disclosure,” said Barsky. “Other insider trades show the current CFO and CMO selling shares too. What did these executives and others anticipate? When did the insider selling really begin?”

Silicon Valley Bank crash is a red flag on rate risk

Investors need to look harder at vulnerabilities across the big banking markets

www.ft.com

Banks exist to take and manage liquidity, interest rate and credit risks. It is therefore stunning to hear that a US bank has just failed because it invested much of its swollen base of deposits, mostly redeemable at demand, into a long-term, held-to-maturity bond portfolio without any interest rate hedge.

Disastrous Risk Management Is Not the Fed's Fault | Investing.com

Market Analysis by covering: United States 10-Year. Read 's Market Analysis on Investing.com

www.investing.com

This means SVB was not applying basic risk management practices and exposing its investors and depositors to a gigantic amount of risk.

I hope they both get sued and charged. Skullduggery in spades A captain who hits the iceberg that he steered at should go down with the ship.

The CEO Greg Becker must be the biggest banking idiot in modern history.
He obviously has no understanding of risk! He was the one that led the charge to reduce the regulations.

I am astounded. We all know of people who get where they are because of connections, not brains, but this takes the cake. Pond scum.

SVB CEO Greg Becker lobbied the government to relax some Dodd-Frank provisions on regional lenders in 2015. Trump did in 2018.

When Silicon Valley Bank busted, it had assets of $220 billion. Trump's rollback lifted the "systemically important" threshold from $50 billion to $250 billion.

fortune.com