SVB - CAO 😳

[VikingsGuy]

Yeah, just like Barney Frank became a plumber

I liked the earlier posts by @wllm about the SVB exec who had been at Lehmans before and Anderson consulting in the Enron era. Just like bad coaches and Julius Peppers - we just keep recycling.

 

[Treeshark]

You are right

Thanks man, appreciate that

 

[Deleted member 28227]

I’m sure everyone knows this but it’s $250,000 per individual named on an account with a max of $250,000 per individual at any one institution.

So if you have a joint account with your kids as beneficiaries you could have $750,000+ at a single institution of FDIC protection.

 

[VikingsGuy]

I’m sure everyone knows this . . .

A very Minnesotan way to introduce the point

 

[Deleted member 28227]

A very Minnesotan way to introduce the point

Working on adjusting my vocabulary to the local diction, can’t be “hey f- you guy”-ing my way about the Midwest.

Apparently.

 

[brymoore]

Eleven Banks Deposit $30 Billion in First Republic Bank

Eleven banks have deposited $30 billion in First Republic Bank, according to a joint statement from the heads of the Treasury, Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

www.wsj.com

 

[SAJ-99]

2. One key example that would have been quite helpful in this case: don’t keep all of your money in one bank, especially one with a poorly-diversified loan book and virtually no risk management in place.

I get you point, but for clarity it was about 25% of the cash Roku has listed on balance sheet. So, not all money in one place. The failure had nothing, zero, zilch to do with the loan book. The bank bought the highest quality securities in the world. The problem was a duration mismatch and customers that move as a herd.

The problem if you are the Fed or FDIC is contagion. Your view of letting them “learn a lesson the hard way” was tried with Lehman. That didn’t go well. This situation is different, but the regulators learned the lesson: Go fast and hard and don’t worry too much about what you are “constitutionally or legislatively” allowed to do. Calm the masses or it will get worse.

 

[Treeshark]

The failure had nothing, zero, zilch to do with the loan book.

I disagree. On March 8th, the SVB CEO alerted customers that they missed their deposit forecast in February, and a rebalancing would need to occur. In addition, Moody’s downgraded their bond rating/dropped their outlook to negative. Customers lost their s$&@ the next day and the stock tanked.

I think a post-mortem is going to continue to show this wasn’t just some spontaneous lemming event- people were justifiably freaked out because the curtains had finally been pulled back on how bad of a position SVB was in- and their loan book was a critical component IMO.

 

[brymoore]

I disagree. On March 8th, the SVB CEO alerted customers that they missed their deposit forecast in February, and a rebalancing would need to occur. In addition, Moody’s downgraded their bond rating/dropped their outlook to negative.

I think a post-mortem is going to continue to show this wasn’t just some spontaneous lemming event- people were justifiably freaked out because the curtains had finally been pulled back on how bad of a position SVB was in- and their loan book was a critical component IMO.

I disagree. On March 8th, the SVB CEO alerted customers that they missed their deposit forecast in February, and a rebalancing would need to occur. In addition, Moody’s downgraded their bond rating/dropped their outlook to negative. Customers lost their s$&@ the next day and the stock tanked.

I think a post-mortem is going to continue to show this wasn’t just some spontaneous lemming event- people were justifiably freaked out because the curtains had finally been pulled back on how bad of a position SVB was in- and their loan book was a critical component IMO.

It wasn’t the loan book.

SVB gains new deposits from startup tech companies. Downturn in Tech slowed new deposits, SVB misses deposit goals. Moody downgrades due concentration in the declining tech industry.

SVBs loans are tied to the cash deposited by the VCs. They call the loans before the cash is below the loan balance.

 

[mdhunter]

I get you point, but for clarity it was about 25% of the cash Roku has listed on balance sheet. So, not all money in one place. The failure had nothing, zero, zilch to do with the loan book. The bank bought the highest quality securities in the world. The problem was a duration mismatch and customers that move as a herd.

The problem if you are the Fed or FDIC is contagion. Your view of letting them “learn a lesson the hard way” was tried with Lehman. That didn’t go well. This situation is different, but the regulators learned the lesson: Go fast and hard and don’t worry too much about what you are “constitutionally or legislatively” allowed to do. Calm the masses or it will get worse.

The whole point of the failure (and my earlier posts) was this bank had too few depositors (ie only really big ones) and then combined this with poor liquidity. When a few customers wanted their cash things went sideways fast. Was the loan book bad? I guess not. Was the boards decision bad to do what they did with the cash? Undeniably yes. The end result is the same. Poor management. You want to defend the loan book, go ahead…it’s irrelevant in the end.

 

[SAJ-99]

I disagree. On March 8th, the SVB CEO alerted customers that they missed their deposit forecast in February, and a rebalancing would need to occur. In addition, Moody’s downgraded their bond rating/dropped their outlook to negative. Customers lost their s$&@ the next day and the stock tanked.

I think a post-mortem is going to continue to show this wasn’t just some spontaneous lemming event- people were justifiably freaked out because the curtains had finally been pulled back on how bad of a position SVB was in- and their loan book was a critical component IMO.

Not going to reexplain. But I will agree the post-mortem will be interesting. I would bet there are some questionable loans to start-up tech execs with a lot of assets in phantom private equity. This is what I’m reading and it would explain why it was so popular with these startup VC companies. Because no one likes their bank THAT much, no?

 

[Treeshark]

Yes that’s what I’m getting at.

I’m not saying that the loan book was the sole factor, but I do feel the whole ordeal had been glossed over as a bad luck occurrence when in reality SVB is more culpable then they’ve let on.

 

[SAJ-99]

The whole point of the failure (and my earlier posts) was this bank had too few depositors (ie only really big ones) and then combined this with poor liquidity. When a few customers wanted their cash things went sideways fast. Was the loan book bad? I guess not. Was the boards decision bad to do what they did with the cash? Undeniably yes. The end result is the same. Poor management. You want to defend the loan book, go ahead…it’s irrelevant in the end.

The is certainly in the weeds. The simplest way to explain is it was a duration mismatch between liabilities (short, on demand deposits) and assets (10yr and 30yr us treasuries and mortgage securities). The bank was brought down by an accounting rule. The assets were certainly liquid, but once they get sold they all have to be priced at market which created a huge hole in the balance sheet.

 

[SAJ-99]

Yes that’s what I’m getting at.

I’m not saying that the loan book was the sole factor, but I do feel the whole ordeal had been glossed over as a bad luck occurrence when in reality SVB is more culpable then they’ve let on.

Yeah, just not sure if there is anything illegal about saying “put your company accounts with us and we will write loans on the equity as collateral.” I’m not a lawyer though. I guess we will know when a bunch of for-sale signs pop up in Vail, Jackson, and Big Sky.

 

[mdhunter]

The is certainly in the weeds. The simplest way to explain is it was a duration mismatch between liabilities (short, on demand deposits) and assets (10yr and 30yr us treasuries and mortgage securities). The bank was brought down by an accounting rule. The assets were certainly liquid, but once they get sold they all have to be priced at market which created a huge hole in the balance sheet.

Ok, you must work there. This bank was certainly not brought down by an “accounting rule”. It was brought down by idiots. You can debate which department they were in.

 

[brymoore]

This tweet about accounting rules started a $42b bank run.

https://twitter.com/x/status/1628779894183272452

 

[Treeshark]

That dude’s Twitter feed over the past few weeks is a very interesting read, wow!

 

[SAJ-99]

This tweet about accounting rules started a $42b bank run.

https://twitter.com/x/status/1628779894183272452

Funny thing that word “liquidity”. It seems to mean different things at different times, and everyone likes to have their own definition.

 

[mdhunter]

Funny thing that word “liquidity”. It seems to mean different things at different times, and everyone likes to have their own definition.

I agree but…

What does liquidity mean when ALL the other big 20 banks have a diversified deposit portfolio with about 45% or 50% of their customers have less than $250k in deposits and the 1 bank in question had ALL their deposit customers with less than 4.5% of their customers? I am not a rocket scientist but that seems like an outlier to me.

 

[brymoore]

I agree but…

What does liquidity mean when ALL the other big 20 banks have a diversified deposit portfolio with about 45% or 50% of their customers have less than $250k in deposits and the 1 bank in question had ALL their deposit customers with less than 4.5% of their customers? I am not a rocket scientist but that seems like an outlier to me.

Yes. The model works fine until there’s a bank run.

Where were the Feds?