Could be trouble at Silicon Valley Bank (Americas 16th largest bank)

Silicon Valley Bank is not Silvergate.
It is not Farmington State Bank (of FTX and Sam Bankman-Fried fame.)

But it is pretty big and very important in the tech sector.
The stock is crashing today, but more distressingly,
companies are rushing to take their deposits out
and move them elsewhere.

SVB’s most recent report indicated an overall health of A, Texas Ratio of A+, Texas Ratio trend of B+, Deposit Growth of A+ and Capitalization of C-.

Obviously the capitalization is on the thin side, but not indicative of a bank in imminent danger of collapse.

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I don’t know what it takes before a bank collapses.

Analyzing it as a business?
It’s a dog.

From the WSJ:

SVB said late Wednesday it would book a $1.8 billion after-tax loss on sales of investments and seek to raise $2.25 billion by selling a mix of common and preferred stock.

Note $1.8b + $2.5b = $4.3 b
The entire market cap (total value of every share of stock) is only $6.3, so losses plus dilution = two-thirds of the company value.

The $209b above is gross assets.
Like any bank it has a lot of liabilities and recently reported it’s total net worth (assets minus liabilities) were $16 billion. $4.3 b is a pretty big share of that.

Most distressingly is that it just recently filed its annual financial statement, at which time it should have, but did not, disclose this $4.3 b black cloud at the time.

Here is an interesting piece from Marketwatch.
As I look into it more, the margins discussed in the article appear to be a symptom, not the under-lying problem.)

It defines that “A bank’s net interest margin is the spread between its average yield on loans and investments and its average cost for deposits and borrowings.”

Silicon Valley Bank (SVB) has a low “interest rate margin,” only 2%. In total, it borrows money at 1% it lends it at 3%.

The article notes

As interest rates have risen, many banks have become more profitable because the spreads between what they earn on loans and investments and what they pay for funding has widened. But there are always exceptions.

The authors looked at the top 108 main street banks in America

  • All of them had a better net interest rate margin than SVB
  • 102 of the 108 had an increasing net interest rate margin in 2022
  • only 6 had a declining interest rate margin in 2022

Below are the six
(The red number is the decline in their stock price. Don’t let it worry you.)

Could be nothing,
or an overloaded server
or something serious, but the SVBs online banking is offline at the moment.

Silicon Valley Bank collapsed Friday in the second-biggest bank failure in U.S. history after a run on deposits doomed the tech-focused lender’s plans to raise fresh capital.

The Federal Deposit Insurance Corp. said it has taken control of the bank via a new entity it created called the Deposit Insurance National Bank of Santa Clara. All of the bank’s deposits have been transferred to the new bank, the regulator said.

Insured depositors will have access to their funds by Monday morning, the FDIC said. Depositors with funds exceeding insurance caps will get receivership certificates for their uninsured balances.

Once a darling of the banking business, Silicon Valley Bank collapsed at warp speed after it announced a big loss on its bondholdings and plans to shore up its balance sheet, tanking its stock and sparking widespread customer withdrawals. . .

Not surprising there.

Once a bank run starts, a shutdown and takeover is pretty much an automatic step as the government wishes to avoid bank runs at all cost.

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We are not getting the full story yet.

Wells Fargo customers are reporting missing deposits and incorrect balances. SVB may not be the only bank with problems.


Apparently Wall St analysts did not analyze the bank very carefully

Via @AndrewHiesinger (Twitter)

  • Goldman Sachs Maintains Buy on $SIVB, raises price target to $312 (6 days ago)

  • Wells Fargo Maintains Overweight on $SIVB, Raises Price Target to $350 (22 days ago)

  • Raymond James Maintains Outperform on $SIVB, Raises Price Target to $375 (34 days ago)

  • Truist Securities Maintains Buy on $SIVB, Raises Price Target to $269 (45 days ago)

  • Maxim Group Maintains Buy on $SIVB, Lowers Price Target to $500 (45 days ago)

Reverse Cramer looks like a winning strategy.

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Likewise, indicates at least 20 Wall St analysts carefully studied the company and faster doing their in-depth research (called "due diligence) they were on average very very positive on the Silicon Valley Bank forecasting nice fat earnings increases of up to 20% Y-over-Y
(20%?? When tech companies, their client base, are are having a horrible year?)

And of course Jim Cramer also advised his viewers to buy stock in the bank.

It does impress the importance, if you have over $250,000 in liquid assets, to spread those assets out between banks (cough) Roku (cough). :smile:

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Hat tip.

The details about what went wrong are still coming in.
I feel, before discussing them, it would first be prudent to show that
once again the Wal St analysts were high on hopium,
they did not do adequate research.

Before discussing “what went wrong”
it is helpful to shine a light on Cramer and other who said “I looked into this company and it is a good strong company with a bright future.”

I believe it is part of a pattern and people are betting their life savings on the hopium.


It gets worse.

No one is 100%, but this guy calling himself “Unusual Whales” is pretty reliable.

I was reading about this today. They had a problem with their reserves. The assets they were selling were treasuries. The problem with them was their average coupon and remaining duration in a rising interest rate environment.They weren’t bad holdings in the traditional sense. But mark to market and the rising interest rates meant that their normally safe reserve holdings were shrinking.

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That’s the part of the story we are getting.

apparently the bank that was the backbone to Venture capital, bio tech and the whole silicon valley made only one bad investment . . . government bonds. (rolleyes)

I don’t believe that, and you should not either.

Note, I am not alleging a conspiracy or a cover-up or whatever, just shoddy research and shoddy reporting. But we are not getting the whole story.

(cut in half)

We keep hearing that VC and tech and startups and biotech etc rely on the bank.
“Rely. . .”
“Depend. . …”
"Necessary for the ecosystem. . . "
Phrases like these have been used a lot today.

If those are meaningful statements then SVB was doing things no other banks would do then and no other bank is willing to do now. (That is a simple definition. That is what those phrases mean.)

If those are not meaningful statments,well, I guess everything will continue in the Silicon valley as if the collapse of SVB is a small thing. another bank will simply step in and do all the things SVB did. (That is definitional if Silicon Valley did not rely on SVB.)

Remember I’m not a novice to the field. Bank reserves are supposed to protect the bank from risk in their less secure loan holdings. The face value of their reserves looked fine, but the current mark to market market value of these assets are what is used to determine the true value of the reserves to meet liquidity issues. A better question is what are the conditions of the reserves of the really big banks?