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Only 12 Months Ago SVB Financial Traded at $592/share

As you all know by now SVB Financial (Silicon Valley Bank) has been seized by the FDIC. Without a doubt their portfolio of bonds and loans was much more troublesome than any of us knew. It is hard to imagine that one of the big banks or billionaires wouldn’t have interest in this company .

The company’s 5.25% non cumulative preferred (SIVBP) has not traded today and had closed at $15.23 yesterday. I suppose these are toast–but who knows for sure.

My question is who stepped into the Firsts Republic preferreds when they were down as much as $6-7/share this morning before bouncing strongly and then exiting? Certainly not me – I’ve gotten burned too many times on these deals.

54 thoughts on “Only 12 Months Ago SVB Financial Traded at $592/share”

  2. Swagger, Arrogance of Position and Bravado.
    I’ll take talent and competence over image and nice any day.
    Maybe that is where most people near the top come from and maybe that is why we’re REALLY still hanging together. Term limits at the Board Rooms both public and private?
    Bring back personal liability and partnership responsibility.
    Fooled us once??

    Reply

  5. Let banks be run by bankers? There may be a major spin factor to SVB: were they too focused on ESG and not enough on net interest margin and risk management.?

    I remember a a TV ad from NY in the 70’s. I think it was Chase that trumpeted “You’ve got a friend at Chase.” I think it was Irving Trust that ran a counter ad of a guy in a three piece suit on a couch with a big shaggy dog who said “ If you want a friend, get a dog (and the dog licks his face) but if you want a Bank, come to Irving Trust.”

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    1. The more I read, the worse this gets

      Of course Ackman is going to plead for his venture capital buddies and firms he has invested in to be bailed out by the taxpayers. Please IMHO let them rot. They benefited from the cozy relationship til they caused it to come crashing down.

      Meanwhile SVB execs sold a boatload of their own stock holdings in the last month, cashing out..

      And SVB paid out bonuses hours before being seized per Axios

      SVB US went without a Chief Risk Officer between April 22 and Jan 23 and the Head of Risk Assessment at SVB, Europe instead of you know, focusing on interest rate risks, was more concerned focusing on LQBTQ diversity initiatives

      https://www.dailymail.co.uk/news/article-11848705/Woke-head-risk-assessment-Silicon-Valley-Bank-accused-prioritizing-diversity-issues.html

      These SVB executives need to be in jail and need to pay massive fines disgorging all of their ill gotten profits and bonuses

      The US Taxpayer should not bail out these VC firms and tech companies one dime more than the FDIC limit

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      1. Now that said, what the Gov’t / Fed should do is create some type of fund / mechanism to backstop other banks out there to calm depositors and prevent runs occurring at other smaller banks

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        1. Good suggestion Maverick61.
          IMHO yes and no. Yes -something to calm depositors both insured and self-insured. But we do not want the government to step in and backstop with so many political strings, terms and conditions as to influence decision making or impede, hamper or restrict the ability of a bank to do its work.
          The right balance. Thread the needle.
          Calm and assuage depositors while maintaining bank independence and management accountability.
          Just my opinion.

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      2. I guess politics will creep in here again some people can’t help themselves…what about Peter Thiel causing a run on the bank, doesnt that raise suspicion on where he and his ‘friends’ in the RepubliCON party of traitors was positioned?? https://www.yahoo.com/lifestyle/peter-thiels-founders-fund-got-114055626.html who was short the stock?? who was short Credit Default Swaps!!! hmmm… I think an investigation into this is warranted for sure.
        fingers will be pointed in all directions without racist homophobic remarks needing to start being posted here at III where it is banned.. go to the Political Comments daily drivel on Seeking Alpha, Reddit or Truth Social and Twitter if you want to link sensationalist unassociated hate mongering please. Bea

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            1. You shouldn’t, I read a vast variety of sources even if I do not agree with their direct point of view. Why people are afraid of differing ideas is absolutely idiotic.
              The control of information is something the elite always does, particularly in a despotic form of government. Information, knowledge, is power. If you can control information, you can control people. Do not be controlled.
              I am Azure and listen to all views and sides of an argument to gain knowledge.

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              1. Well said Azure. I too read a wide variety of sources and perspectives even ones I disagree with. There are benefits in doing so.

                And you are so right about the control of information. I read one comment tonight from a congressman after he and others in the House and Senate were briefed by Treasury, the FDIC and the Fed – and well the comment goes right to your point. He said one Senator asked whether they had a program in place to censor information on social media that could contribute to a run on banks.

                Egregious and illegal overstep to control information

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        2. Thiel saw Wednesday that SVB announced it needed to raise money. That looked like a problem to him and he took action. Reasonable thing for him to do.

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        3. Not sure what you are talking about.

          There was nothing political about my post. No mention of any political party, etc. I posted actual facts I read. You may not like them, but that is on you. The only politics I see is in your post

          The fact is SVB severely mismanaged their interest rate risk. And that they were without a US Chief Risk Officer for 8 months until Jan 2023, And there European Chief Risk Officer was too occupied doing a bunch of unrelated crap rather than, you know focusing on risk. Again, you don’t like the facts the article presented, take it up with SVB.

          As to Peter Thiel and other venture capitalists, I guess you missed my post criticizing them for causing a run on the bank

          Bottom lne, there is plenty of blame to go around.
          SVB’s management enriched themselves and their employees\
          SVB’s Risk Manager was utterly derelict in her duty to busy with other crap
          The VCs panicked, not letting SVB solve the issue, and made it worse with their bank run
          JP Morgan contributed by trying to poach SVB customers as they smelled blood in the water

          Reply

          1. You get a bailout, and you get a bailout, and you get a bailout

            Bailouts all around

            Fed Panics: Signature Bank Closed By Regulators; Fed, TSY, FDIC Announce Another Banking System Bailout

            On Friday, we said that the Fed will have to make an announcement before the Monday open, and we didn’t have to wait that long: in fact, the Fed waited just 15 minutes after futures opened for trading to announce the new bailout, alongside even more shocking news: the Treasury announced that New York State regulators are shuttering Signature Bank – a major New York bank – adding that all depositors both at Signature Bank, and also the now insolvent Silicon Valley Bank, will have access to their money on Monday.

            And as we process the shock of yet another small bank failure (which makes JPMorgan even bigger), the Fed just issued a statement saying that “to support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.”

            The Fed also said that it is prepared to address any liquidity pressures that may arise, which in turn has just unveiled the first bailout acronym of the new crisis: the Bank Term Funding Program, or BTFP. Some more details:

            The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

            The Fed explains that the Department of the Treasury will make available “up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP.”

            Much more at:

            https://www.zerohedge.com/markets/svb-latest-developments-live-blog-fdic-auction-failed-svb-assets-underway

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  7. A few points on SVB:

    1) Unless you are in venture capital and/or the startup space, you might not appreciate the significance of SVB. They are hugely important to new company formation in the US. Not just in Silicon Valley but also in Boston, NYC, Austin, etc. They have incredible expertise in guiding/assisting new company formation. They have the deepest Rolodex of any organization in the world in this area IMO. Ignoring the short term financial impacts, the long term business formation impacts are significant unless the SVB team somehow remains intact.

    2) The masses do NOT understand this could happen to darn near any bank in the US. This is why BofA, Citi, Morgan, Goldman, etc had to be bailed out in the GFC after Lehman failed. If the Fed had not stepped in then, ALL of those “too big to fail banks” would have literally gone BK.

    3) Everybody around here understands SVB’s problem. They held a bunch of paper (bonds/loans) at say 1.5%. When rates went to 5%, the 1.5% paper has a large paper loss if it is marked to market. SVB sold about $20 Billion of this paper and REALIZED a ~ $2 billion loss on it. Other FDIC insured banks have a ~$750 billion loss if marked to market.

    4) The San Francisco Fed could have given SVB access to the discount window to borrow whatever funds were necessary. The San Francisco FHLB bank also could have made funds available. Not sure why they did not. The bank run possibly came up too fast for them to respond.

    5) A totally different failure mode compared to the GFC. Banks then had “AAA” paper valued on their books @ ~100 and the world figured out it was only worth ~ 10. I have not seen anyone question the quality of the SVB assets, other than the interest rate/duration write down.

    6) Many people are faulting SVB’s interest rate hedging or lack thereof. Personally I do not think that would have saved them when ~ 25% of their deposits attempted to get out in less than 24 hours.

    7) BOTTOM LINE imo is that this could have happened to ~ literally any bank in the US. I do not expect a Lehman/AIG type contagion, but the new business formation impact will be significant. Personally I thought they were “too big to fail” in the regard, but was obviously 100% wrong.

    Never worked for SVB and/or have any current business relationship with them.

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    1. Tex, great insight and thank you for explaining for us folks who are as savy as you in the fixed income arena.

      If you don’t mind, can you elaborate if these securities ever have to get marked to market? Or is this essentially a non issue moving forward.

      3) Everybody around here understands SVB’s problem. They held a bunch of paper (bonds/loans) at say 1.5%. When rates went to 5%, the 1.5% paper has a large paper loss if it is marked to market. SVB sold about $20 Billion of this paper and REALIZED a ~ $2 billion loss on it. Other FDIC insured banks have a ~$750 billion loss if marked to market

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    1. That article points the finger directly at mega bank JP Morgan, an SVB competitor. There’s more to this story than venture capital group think.

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      1. Yeah, the article mentions JP Morgan as a competitor trying to poach some clients once the run started. But it was the group think from the venture capital firms that caused the run and the bank to fail, not JP Morgan coming in to steal some customers.

        SVB’s MAIN problem wasn’t as Tex stated investing long in low rate securities and had losses when they went to sell. It was the fact that a majority of their customers (many controlled by the same VC firms) pulled their cash out all at once not allowing SVB time to recapitalize. Now I am not saying they didn’t mismanage their interest rate risk – they absolutely blew it there – but they could have survived and recapitalized if not for the historic rapid bank run.

        While I agree with Tex that this could happen to any bank, I think SVB was really unique in it’s customer base and thus an anomaly in the sector (although never say never)

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  9. Contagion in action:

    We have a small online business, uses Etsy as a sales channel:

    “We wanted to let you know that there is a delay with your deposit that was scheduled for today. This delay was caused by the recent developments regarding Silicon Valley Bank, who Etsy uses to facilitate disbursement to some sellers. We are working with our other payment partners to issue your deposit as soon as possible.”

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    1. Eladio–correct–this will take a few days to sort out and in the meantime little people are getting hurt.

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  10. The US market for $300 Italian sneakers and the Ferrari SF90
    will be taking a big hit. Is that what they mean by contagion? As always mass media never misses an opportunity to bash the normalization of interest rates when in fact it was low interest rates that allowed SVB to gain its dominate position in their niche market. That in addition to borrowing short and lending long.
    Combine this with everything else that’s churning under the surface and the unprecedented geopolitical risks and it reinforces my belief that nothing is safe and it might be a good idea to get ahead of the curve and walk across the border and beg for refugee status in Canada before the line gets too long.

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    1. Azure, Someone else has the same opinion. And created a way to act on it.
      The same logic applies to today’s launch of the Inverse Cramer Tracker ETF (SJIM) and the Long Cramer Tracker ETF (LJIM). SJIM’s investment objective is to engage in transactions designed to perform the opposite of the return of the investments recommended by television personality Jim Cramer.
      https://www.thestreet.com/etffocus/blog/inverse-cramer-etf-is-live

      Reply

  12. Two commentaries on SVG were really good and helped me think about FRCPRH. Rubinstein: https://www.netinterest.co/p/the-demise-of-silicon-valley-bank and Levine: https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run?sref=NVuxlzuW. (paywall). I own a bunch of FRCPRH and am now down 19% on the position (boom). My downside rule is if I am down 15% or more on a position I have to either double down (so two bunches) or sell all. I have the weekend to figure it out. 10-K here I come.

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  13. My friend is a highly placed bank lawyer. He’s saying the ramifications are incredible. They may not be allowed to take 100% of the tax proceeds, SVB held as custodian for Cal/USA,….while stiffing everybody else. This move was EXTREMELY unusual.

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  14. If the changes in the market in the last two days represent flight from financials and flight to quality, are we going to start seeing more pronounced credit spreads? I have B energy preferreds that got beat up as well as the financials.

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      1. Thank you! Very helpful. It suggests to me that although junk spreads could get higher, they aren’t rock bottom now.

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  15. It is almost impossible for a banker to tell a client “no, we can’t take any more of your money”, but we see (in part) what happens when too much money from too few clients can do when they pull out at the same time.

    I will need to get into this after the dust settles. I try to convince some of my clients that they don’t want to get too dependent on one customer, no matter how good it is.

    In our consulting, we have several examples of a “hypothetical fruit-named company” that tanked several manufacturers over the years by insisting the manufacturer supply more for fruity (by cutting other customers), build more capacity (with no volume guarantees), etc. Then when fruity changed directions, it dropped all orders and the manufacturers were left with huge dedicated capacity, huge debt, and no orders – so they went under or were crippled.

    This bank failure should make another good example, if what we see in the press turns out to be true.

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    1. Private, I met one of those “fruit” suppliers in a shared small family growers tasting room years ago in railroad square. He was pouring a tasting of a red they were having a clearance on. Seems a big retailer (begins with a C ) ordered 50, 000 cases/ bottles ? after 1st shipment of 1/2 the order the retailer cancelled the second half of the order. This was after all the bottles had labels and UPC codes.

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  16. And another way to look at this……..

    Only 12 months ago we were at 0.5% Fed funds rate

    strange, eh?

    The talking heads were saying the SIVB bank were selling Treasuries to raise funds – but it was at a loss in principle

    So when do we see some pension fund somewhere do the same thing with the same results?

    Wow, what a mess.

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    1. Pickle:

      Correct. Any forced longer-term Treasury security seller in the current environment is likely in big trouble. Banks, pension funds, insurance companies. SIVB had bought those longer-term Treasury securities when we were still in the ZIRP policy last year (which the Fed obviously kept us for far too long). Selling them caused a near $2B realized loss.

      Great summation from one of my favorite weekly financial writers on how destructive the Fed’s policies have been as they continue to mess with “Mother Nature”:

      https://www.mauldineconomics.com/frontlinethoughts/how-it-started-how-its-going

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  17. Here is my two cents.. worth about nothing.

    Both SI and SVB had clients who were whales. We are talking huge amounts deposited with them compared to everything else. To me these are not normal banks in any way shape or form. One had huge crypto clients and the other were angel/start up investors. Both got skittish and were able to completely destroy the banks they used by pulling out all their money as a group. Otherwise known as a bank run.

    Most of these other banks being mentioned are not even close to being in the same position. Yes they might have securities that are under water. What bank doesn’t? But they are so much more diverse.

    Seems to me investors are just selling and will not wait for clarification. In a few business days people will settle down and these banks will recover.

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    1. fc:

      Well said.

      The Venture Capital firms basically took down their own region’s bank by yelling “fire” in a crowded movie theater. Peter Thiel and his buddies single-handedly re-created the classic scene from “It’s A Wonderful Life.”

      This bank probably would have survived and been able to raise capital if the rush to remove deposits was not so relentless. They couldn’t say much because they were in a quiet period due to the capital raising efforts.

      That being said, the dumbest PhDs on the planet at the Fed likely still don’t understand that their policies and words have massive unintended consequences. There is likely to be some contagion here as this is the 2nd largest U.S. bank failure ever.

      Certainly hope this vaporization of a $200B bank in 3 days starts up the conversation again to end this pathetic institution (The Fed) once and for all.

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      1. What if the Fed does understand their policies and look forward to these consequences.

        Certainly more bank failures will slow the economy, but most important, the only thing to make rates drop/fed funds is financial calamity.

        I say bring it on.

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      2. End the Fed?
        That won’t happen.
        Imagine the Congress actually trying to figure out where the money for their spending would come from if they actually had to raise it? Most of the people we have today in Congress have no financial sense and rely on some magical wizardry provided by the Fed to conjure it up.

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      3. Not sure the Fed is to blame, sounds like poor asset/liability management. Why would you you buy 90+ billion of high duration/low yield mortgage backed securities backed by commercial deposits (other than reaching for yield)? Also wonder why they couldn’t post the MBS as collateral at the Fed, and borrow against it. Will be interesting to see if we ever find out how much deposit money got pulled in the last few days.

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      4. Gonna have to push back on some of the points you made here Kid.

        SVB knew it had problems and was working with Wall St. (GS) on a capital raise to fix them. Toward that end they filed an 8-K with the SEC on Wednesday afternoon that included a mid-quarter update on a recovery plan, including the $1.8B long treasury loss and the $2.35B capital raise. Anyone with access to the internet could have read about the plan after that public filing, including the local VCs and their clients who use the bank.

        Founders Fund and some other SV venture capital incubators advised their start up clients to consider moving their seed money out of SVB that evening, after the 8K filing. It turns out that was prudent advice for the startups who took it.

        While I agree that a much better outcome would have been to see the SVB plan executed and the bank survive, it would be wrong to blame the catastrophe on the folks who rightly advised their clients on the risk they were facing with their seed money.

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  18. 18 months ago Barron’s wrote an awfully favorable, not to say fawning, article on the stock:

    https://www.barrons.com/articles/buy-silicon-valley-bank-stock-51631298464

    “While some banks have struggled to grow their loan book over the past year, SVB had 8% quarter-over-quarter growth in loan balances, reflecting strong activity in the tech and healthcare sectors…

    “With the sharp run-up in its shares, one may wonder if there is room for more growth. Analysts surveyed by FactSet say yes, with 57% rating SVB stock the equivalent of Buy. The average price target is $666.65—13% above recent levels.

    “SVB’s stock is a rare gem, offering an opportunity to share in the growth of tech start-ups while having the solidity of a bank.”

    Anybody buying stocks based on newspaper articles, something I admit to having been guilty of, should print this article and hang it on their wall.

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    2. In fairness SIVB was trading at $602 when the article was written and the analysts calling it a buy had a target price of $667. SIVB peaked in January 2022 around $750, so there was plenty of time to sell for a nice gain.

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    3. Say what you want, it’s easy to play arm chair QB. Do you know 22 firms had buy ratings on SIVB? Did you know Vanguard was the largest institutionsal investor at 11%?. Did you know it was part of the S&P 500?

      Things happen. Life/investing is not about being perfect, rather its about having a system and staying true to your rules.

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