It's a (now former) financial institution with 200b$ in assets and had a mcap of 13b$ at the start of the year, and relied heavily on its connection to the tech community for its massive growth. It was a big growth story the entire time I was trading regional banks a few years ago. If a big bank like that can go from being a going concern to receivership in under 48 hours and the NASDAQ shrugs it off like it's a normal-ish day, then I just don't know what to say about the common sense in our financial system. This said, I sincerely hope none of us had more than the FDIC 250k$ limit in SVB!
This is more a dot com occurrence than 2008. A lot of venture-backed technology and health care companies are going to go bust because they survived on very low interest rates and they will take down the banks that weren’t diversified enough to to accept the hit. The other problems are 15 years of below inflation interest rates have convinced people the current rates will correct to pre 2022 levels. There is a world wide capitol crisis coming as all the industrial countries are in debt to the hilt and their aging populations are retiring and simultaneously drawing down savings and relying on social programs over the next 20 years. Equities are going no where for the next 10 years. 2022 was the peak of the boomer retirements and these were the people driving the market in 2020 and 2021.
Agree wholeheartedly on all those points. I expected to see more of a reaction to Nasdaq given it's tech exposure. And I firmly believe the mere *hope* that we'll go back to zero interest rate policies is the only thing giving it support, because it sure isn't coming from the fundamentals.
SVB had taken out $15B from the SF Home Loan Bank to shore up it’s balance sheet in December, so there was warning. While their focus technology ventures was profitable for a long time, that narrow sector has been burning through piles of cash since oh, about forever while SVB’s balance sheet had about $2B in unrealized losses until it sold a bunch of securities and the losses became realized on Wednesday. SVB was unique in the large amount of securities on it’s balance sheet, but the whole banking industry is sitting on $600B of unrealized losses right now. So long as other banks don’t get hit with a run like SVB did yesterday after Y Combinator advised anyone with an account there to pull their deposits after losses on Wednesday were announced. Today’s collapse isn’t the big news; whether the market has the appetite for the assets as it’s liquidated is the real news.
The unrealized losses on HTM securities is definitely an issue facing all the institutions out there. But that pain is distributed, and should be largely mitigated by good risk management (aka not having a duration gap wide enough to fly a 747 through). When you're overweight long dated assets in this environment without much room to maneuver -- you're in trouble. Those whose funding comes from vulnerable entities, like SIVB who has high cash burn companies (like you mentioned), it's double trouble. Especially when the majority of them are well over the FDIC limit and need to be extremely cognizant of their exposure, especially if that money is being used for such basic tasks as payroll. Any paranoia can spiral. But I'd like to just point out that SIVB is not unique. There are many regional banks with these attributes. A lot of them hold mortgages on their books and that works great until it doesn't. If you pair that with your funding coming largely from vulnerable depositors you've got a recipe for trouble. Lastly, I totally agree with your point, there is no question the bids they get on the asset side of their business is going to be telling. And who knows how many loans they made using tech equity as collateral. Given VCs massive exposure to them I suspect there's going to be a lot of founders+VCs having difficult phone calls this weekend about bridge funding until they can get their FDIC advances (who knows how much they'll get). I've already heard from one friend of an extremely successful start-up whose company relied on SVB heavily, and it's a huge issue for them.
Let’s see; Silvergate announced they were liquidating this week, PacWes is in no better shape than Silvergate, and First Republic is in the dumpster, too. We’ll see if a spark turns into fire.
It's starting to look to me like a number of financial institutions pushed investments into HTM to avoid the hit to equity this last year. Schwab started the year with $0 in HTM and ended the year with about half their portfolio in it...further reducing their "room to maneuver" as you note.
One can only hope that Schwab understands duration and liquidity better than a bank that caters to VCs.
This is what happens to a bank when customers begin initiating withdrawals of $42B in deposits after the bank makes moves to increase its health. The letter to shareholders the day before was reassuring, as is typical. A popular bank rating website painted a great picture of the bank. The brokerage pages show a healthy and respected bank. On the surface it all looked fine, but understanding banks and reading the fine print reveals warning signs of what could and did happen. CEO of SIVB sold a considerable amount of stock in the weeks proceeding this event. One lone and odd investment in options helped someone in the know make a killing. I can’t imagine having a large amount of shares in SIVB and hanging on with hope and not selling.
But if true to the declaration of listing it as HTM, wouldn’t that mean they are healthy enough for now to accept the low return rather than selling at a loss to reinvest like SIVB tried to do? Isn’t HTM just a FASB classification, and if so, why list it that way if there* is no intent? I’d be more concerned with those listed as available for sale.
Ahh yes... Banco de la Mattress. Benefits: 24/7 ATM No federal reporting No account fees Mattress firmness increases proportionate to your net worth Drawbacks: Your Chinese made battery operated blanket from WalMart catches fire and now you have no savings.
Ehh.. if it's held available for sale I believe it needs to be marked to market. Once you're no longer able to "mark to make believe" then you stuff the shi* that's dropped in value into any account that won't require you to disclose it's new value. That's where analyst calls at earnings can come in handy because they *SHOULD* drill down into any major changes there.
I'm very well connected in the startup world, having one of those cool tech startups myself and consulting 20+ of them as a business advisor through an accelerator program. A lot of the people I know are in a world of trouble due to SVB. Some have their entire seed round, series A round, etc. in a SVB account. There will be a lot of missed payrolls, missed invoices, and I anticipate a ton of shut downs in the startup world in the coming months. Many VC groups and angel investors also heavily relied on SVB for their banking needs. Their money is gone (or at least frozen for now) as well so it's not like they can bail out a lot of the startups in the first place.
The games they play with accounting is something that the SEC is supposedly taking more interest in lately. How far they get is yet to be seen. One thing that catches my eye is musical chair CFOs. The scholars say “smoothing” is good, but not when it’s fraud.
Ha! You're using too much logic! I agree, musical chairs CFO is such a glaring red flag. Well... I agree it was a red flag and probably still should be.. But then Bed Bath &Beyond came along and the stock price plummeted, they fell behind on their lease payments, their suppliers ditched them and the CFO jumped from his high rise balcony and killed himself -- and on that news the stock defied gravity and increased a few hundred percent. So who knows what's considered good news or bad news these days?
Wow, i interviewed with them and FRC before going with my current bank. We are also a bank filled with HNW clients but it’s mostly old money as opposed to new money. I also agree this doesn’t feel like 07/08. (Famous last words)
Mattress? Nah, no need for running to the bank in a panic really. If you can't beat 'em join 'em. Just deposit with the big boy crooks that got bailed out the first time. Go down the TARP list and you got a ready made list of banking providers who aren't gonna go belly up, cuz uncle sammy has already showed his willingness to float said usual suspects. Airline guys make similar argument when it comes to their own employment choices, especially circa March 2020. Too big to fail is a thing in America now, good bad or indifferent. It's their Country, we just toil in it, for an inflation-discounted pence. At any rate, banking with big boy TARP recipients is as good a guarantee as you're gonna get in this life, second only to a federal govt pension. I happen to swear by both (JP Morgan Chase in my case, and the US Air Force, respectively), and I sleep like a baby. I don't even split the war chest in 250k increments. Hell, they even sit in the building that Bear Stearns used to occupy. If that doesn't make one superstitious about the keeper's of one's money, nothing will. Jest aside, I learned a lot about moral hazard since 2008. That's why I make choices that ensure my demise is mortgaged to that of others. I'm not gonna get rich living like that, but I'm not gonna be the sole sucker left out in the cold either. Which is another way of saying you're not gonna catch me jumping off any balconies whilst wearing a 5k suit anytime soon either. TARP taught me much about socializing losses, again if you can't beat 'em join 'em. Don't mistake this for advocacy, I just pick my battles (Sun Tzu). Cynical? You betcha. I do feel for depositors who got cleaned by transacting with this bank over the FDIC limit. Should have gone with a bigger fish (see above). You can't lose what you don't put in the middle (Rounders reference, love that movie).
Once banks start introducing social credit measures aligned with central government demands, then it’s time to go with the mattress.
For many folks (startups), they had little choice. If you go raise a series A, there is a really good chance you're going to end up with some sort of arrangement that requires you bank with SVB. Not only that, much of the venture capital was banking with SVB too. So the VC may not be able to bail the startups out even if they want to. These are not your typical bank accounts. The vast majority of these accounts are way over the 250K insurance limit (xxM or better sorts of balances). It's not practical to operate a tech company while staying under 250K limits. You'd run out of banks, and you wouldn't be able to make payroll from a single bank. A wise startup would have insured themselves against this risk. Problem is - not many of these startups were thinking with that sort of long-term risk management wisdom yet. The likelihood of a SVB bank failure was miniscule compared to the 90% likelihood that their company fails (startup life) Here is the ELI5 of where we are: 1.) Covid kicked off, the lockdown started, and VC stopped all investments in new startups. 2.) The lockdown eventually ended, and VC was sitting on massive amounts of money that piled up. Not really great for them. They need to get it invested to make the returns their clients are looking for. 3.) VC quickly goes and invests billions and billions into startups last year. VC helps startups get everything setup quickly, and does so with SVB. 4.) SVB's deposits go from 80B to 160B in a very short order of time. This pressures SVB, as they need to figure out where/how to invest this money to generate the returns needed to please the SVB public investors. 5.) For some incredibly stupid reason, SVB decided to go spend this extra 80B on 10/20/30 year treasury bonds (this is where things went horribly wrong) 6.) New series A startups spend a lot of money. In fact, they typically plan to spend their entire initial investment in 18 months or so. 7.) Taking 80B from someone who intends on needing all of that back within 18 months, and using that in 30 year investments, is a bit of a problem. 8.) SVB suddenly needs to make more cash to keep up with the startup spending on the deposits, so they decide to sell the long-term notes at a 2B loss or so. 9.) SVB announced that to their shareholders, and the VC who has all this money tied up in startups, reached out to those startups and told them to move all their money ASAP. 10.) This is tech. Things go fast. You tell a founder to yank all his money and he will be tapping on his phone and getting that done in a few minutes. You don't need to stand in line at a bank anymore. (Some of them got this done, most of them didn't because the SVB website crashed quickly yesterday) 11.) Just like that, SVB was looking at probably one of the worst bank runs in history and the Feds put the hammer down. Why SVB did not foresee startups spending their initial funding round quickly...I have no idea... Now a whole bunch of startup employees wait to see whether their company will survive past next week. Without the operating capital of their SVB account - it will not be possible for any of them to make payroll or pay any vendor. They don't have the revenue for that. This will cascade throughout the whole tech industry in not great ways if not quickly solved. If you are a tech company who does not have their operating capital in SVB, you might still be screwed, as a large portion of your customers probably do.
You're right about that. After we raised our first round back in 2017, we were targeted hard by SVB. I was happy with our bank though so never signed up with them even after raising a subsequent round in 2021. I'm sure glad I liked my initial bank enough to not switch banks back in 2017 but the offer of SVB sure was enticing back then. I know many of my fellow founders did end up with SVB though and I hope they can figure out a way to stay afloat now.
Whoever made that decision is known as a poor hiring decision. How that ever seemed like a good idea is beyond me.
I’m still learning about how banks operate, but that was one thing that came to mind right away. They didn’t strategize or diversify very well. Their logic in explaining their moves on Wednesday sounded so logical and almost routine, but they must have known it wouldn’t go well when customers would get calls telling them “get your money out now!”
Why is that? I'm seriously asking, I'm not a tech/crypto/"synergy"-salad bro, so I don't know why that would be the case.
Technology innovation may have just peaked for the next decade or so. SVB was the 16th largest bank in the US. Banks the focus on other specific segments (like commercial real estate) might be subject to similar runs and a stock market correction is not unrealistic. Fed rate hikes could be done for. If this stays contained within the tech sector, it may just be an interesting news article.
I doubt it will have a huge impact on you. I think this will very much be contained to the startup/tech world. We're not talking about a housing bubble being bursted. I do believe that the days of lofty startup valuations are over, at least for a long time. I never understood how some of the companies I knew raised money on a $100M+ valuation with almost nothing to show for in terms of revenue or a path to profitability. No more of that in the near future and I think that's actually a good thing.
When VC is giving $xxM to some college dropout bros that have never had more than a few grand, they tend to want that money to be sitting in a bank they are familiar with where they have strong existing relations. Additionally, most banks would not provide services that startups need, whereas SVB has traditionally been OK at that for 40-ish years. It's also not uncommon for SVB to make small investments into startups & require that banking take place with them as a requirement. I'm sure the specific terms are more complicated, but that is the general idea.
Assuming you aren't employed by someone who had the majority of their assets sitting in a SVB account, not likely too much. However, that will be a pretty large number of people. As an example, Roku just announced they have $487M worth of uninsured deposits sitting in SVB.
Roblok announced $151M or so was there, Rocket Lab had $38M. Until the balance sheet is unwound, actual losses are still a guess though. ETA: apparently the USD Coin backers had north of $3B in reserves held with SVB. The market cashed out about $2B in USD Coin today.
