SVB: Biggest bank failure since '08

On Kudlow they just said SVB had to pass a quarterly stress test. Wow. I'd like to see data on the last one and how it passed.
 
Palmpilot said:
Because that worked so well in 1929.
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The FDIC didn't exist in 1929.

I'm not sure how I feel about the extra backstop that has been provided depositors. On one hand, I do feel for the depositors. I bet there are a lot of startups out there who have been told by their VC's or board that they should bank with SVB. And even if they had concerns, they had to decide whether that was the hill they were going to die on.

On the other hand, we've had 500+ bank failures since 2008 (https://www.fdic.gov/bank/historical/bank/) and I don't think that any of those depositors were covered above $250k. Was this case different because of its size? We won't know because the govt stepped in.

More banks will fail in the future. What should happen with their depositors over $250k?
 
Exercise for the student - what deposit insurance existed in 1929?
 
Bob Noel said:
Exercise for the student - what deposit insurance existed in 1929?
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None was mandated, as far as I know. It was an example of the "let the market decide" philosophy.
 
Sam D said:
In the other hand, we've had 500+ bank failures since 2008 (https://www.fdic.gov/bank/historical/bank/) and I don't think that any of those depositors were covered above $250k.
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Click on the year and you will see a list of failed banks for that year with additional information. Most of the failed banks were taken over by other banks which assumed all deposits. So it is relatively rare that depositors lose money in a bank failure even if they have more than $250k in their account.

Sam D said:
We won't know because the govt stepped in.
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They're supposed to.
 
The market crunch continues. This is likely to not end pretty.
As for SVB, a depositor group has formed with the intent to force bankruptcy so assets can he liquidated.
 
TCABM said:
That’s child’s play. The bigger concern should be around US Treasuries and German bunds, which is where everyone is trying to get into.

So much so that it’s overwhelming the system and slowing trades significantly.
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Anybody know when the next T-bill auction is?
 
Earlier in the thread there was a comment about regulation could have prevented this.
Actually the CEO of SVB was among many who advocated for the change in 2018 which raised the application of Dodd-Frank requirements from 50B to 250B.
Under Dodd-Franck the asset mix and multiple other aspects of SVB would have been flagged and prevented.

Tim
 
tspear said:
Earlier in the thread there was a comment about regulation could have prevented this.
Actually the CEO of SVB was among many who advocated for the change in 2018 which raised the application of Dodd-Frank requirements from 50B to 250B.
Under Dodd-Franck the asset mix and multiple other aspects of SVB would have been flagged and prevented.

Tim
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Ironically, Barney Frank has sat on Signature’s board since 2015 and also championed for the change.

He commented that change had nothing to do with Signature’s failure.
 
From what I understand, Barney Frank is correct. SVB did not manage the asset side correctly and losses there along with a liquidity crunch took them down. This is tested as part of the Dodd-Frank act.
On the flip side, Signature had a problem with defaults on loan side with some comments that the default rate was double digits (from what has been published, Signature had lots of loans related to cryptocurrencies. The default rate sky rocketed in the past quarter way above what anyone predicted; and cryptocurrency loans could not be packaged and sold so the bank was left holding the bag).

It will be interesting if there is any public post mortem on Signature.

Tim
 
TCABM said:
Ironically, Barney Frank has sat on Signature’s board since 2015 and also championed for the change.

He commented that change had nothing to do with Signature’s failure.
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That's NYC for you. Barney Frank and Ivanka Trump on the same board. Hard to imagine that an institution under that caliber of leadership would do things that are not up to the highest standards.
 
Wait, I'm a crypto noob but people legit took loans out to finance their crypto?? That's insane!
 
tspear said:
From what I understand, Barney Frank is correct. …

Tim
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He is. The irony is how quickly his position changed between being in office to then being invited to the board of Signature. Then how quickly he’s attacked banking regulators for shuttering Signature.

Neither bank was a run of mill retail bank and FDIC is geared to oversee run of the mill retail banks; 2008-09 should have taught us bank examiners need to be as competent in a bank’s business as the bank is. What we should be learning is that examining niche banks needs to evolve as well.
 
Tantalum said:
Wait, I'm a crypto noob but people legit took loans out to finance their crypto?? That's insane!
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Lots of different things with crypto. SVB was sitting on $3+B of reserves that allowed USD Coin’s crypto to be pegged to the dollar.

Some folks are using leveraged assets for crypto and then leveraging that crypto to get cash. Talk about a house of cards.
 
TCABM said:
He is. The irony is how quickly his position changed between being in office to then being invited to the board of Signature. Then how quickly he’s attacked banking regulators for shuttering Signature.
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No irony at all. It's just that he was ignorant to how a bank is run when he was in congress.

Neither bank was a run of mill retail bank and FDIC is geared to oversee run of the mill retail banks; 2008-09 should have taught us bank examiners need to be as competent in a bank’s business as the bank is. What we should be learning is that examining niche banks needs to evolve as well.
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Or maybe go back to a system where you have run of the mill retail banks that are limited in what they are allowed to invest in and specialized investment banks that are a bit more 'off the leash' and allowed to get into more innovative things. 'Glass Steagall 2.0'. That way the risk from the crypto-bros has no potential to take down Aunt Lucys savings book (and the FDIC) with it.
 
Looks like one or more of the Big 4 will try to help shore up First Republic now, too. The ECB announced another rate hike today, so expect more volatility. People are starting to wonder about the health of the non-bank SoftBank.
 
Oof.

Top executives of First Republic Bank sold millions of dollars of company stock in the two months before the bank’s shares plummeted during the panic over the health of regional lenders. The bank’s chief risk officer sold on March 6, according to government documents. Two days later, Silicon Valley Bank shocked the market and sent other banks into freefall. First Republic was among the worst hit.

Probably paywall:

https://www.wsj.com/articles/first-...lion-in-stock-in-months-before-crash-ca6ce79e
 
TCABM said:
Oof.

Top executives of First Republic Bank sold millions of dollars of company stock in the two months before the bank’s shares plummeted during the panic over the health of regional lenders. The bank’s chief risk officer sold on March 6, according to government documents. Two days later, Silicon Valley Bank shocked the market and sent other banks into freefall. First Republic was among the worst hit.

Probably paywall:

https://www.wsj.com/articles/first-...lion-in-stock-in-months-before-crash-ca6ce79e
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I thought I had read that the same executive had sold a similar amount of shares at the same time the year prior, so it may just be an annual planned transaction. However, it certainly has poor optics either way.
 
TCABM said:
Looks like one or more of the Big 4 will try to help shore up First Republic now, too. The ECB announced another rate hike today, so expect more volatility. People are starting to wonder about the health of the non-bank SoftBank.
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Ha! I don't wonder about the health of non-bank SoftBank. I know they're garbage :). Nothing else to wonder about! With their dumba** move of converting WeWork debt to equity (WHY?!?) just to keep that company going, I can say that softbank never disappoints in making the worst decision at every juncture.

In all honesty though -- whenever I'm hunting for shorts I usually pull out their list of portfolio cos as a good starting point :cool:
 
SoonerAviator said:
I thought I had read that the same executive had sold a similar amount of shares at the same time the year prior, so it may just be an annual planned transaction. However, it certainly has poor optics either way.
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SVB had the same problem, but their’s were clearly documented as bonuses and sales related to annual performance management awards that had been announced last month.

Not sure that’s the same at FR, but it is bonus season everywhere right now.
 
TCABM said:
Oof.

Top executives of First Republic Bank sold millions of dollars of company stock in the two months before the bank’s shares plummeted during the panic over the health of regional lenders. The bank’s chief risk officer sold on March 6, according to government documents. Two days later, Silicon Valley Bank shocked the market and sent other banks into freefall. First Republic was among the worst hit.

Probably paywall:

https://www.wsj.com/articles/first-...lion-in-stock-in-months-before-crash-ca6ce79e
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SVB executives sold stock too, and DoJ is investigating, but I'm not sure that they will find an insider-trading violation, because they were part of a preplanned schedule of regular sales.
 
TCABM said:
Looks like one or more of the Big 4 will try to help shore up First Republic now, too. The ECB announced another rate hike today, so expect more volatility. People are starting to wonder about the health of the non-bank SoftBank.
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Wall Street seems to be happy today, so far.
 
Well, First Republic is pretty much gone.
I wonder if the fed/treasury/fdic plan to guarantee the $30b in deposits that the majors just showered FRC with?
Using math and mental gymnastics that only the government is capable of, $5b+ per depositor might somehow clock in below $250k FDIC limit and remain insured...
 
Didn’t BofA inherit First Republic in 2008 and later spin it off? That would make this the second time FR has failed.
 
Also, UBS and the Swiss government are concerned enough about the tangible value of Credit Suisse that they’ve entered into a loss sharing agreement over.
 
UBS is going to purchase them outright, underwritten by the Swiss taxpayer $$s.
Wow, This is going to be a ride, planet wide.
 
bbchien said:
UBS is going to purchase them outright, underwritten by the Swiss taxpayer $$s.
Wow, This is going to be a ride, planet wide.
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To be fair, Credit Swiss has been a slow moving car crash for about a decade. It would still be a very slow moving crash now if investors did not suddenly get nervous after SVB and Signature.
On the flip side, investors should have been more nervous about Credit Swiss, and really should have been concerned about it a few years ago at a minimum.

Tim
 
ArrowFlyer86 said:
Well, First Republic is pretty much gone.
I wonder if the fed/treasury/fdic plan to guarantee the $30b in deposits that the majors just showered FRC with?
Using math and mental gymnastics that only the government is capable of, $5b+ per depositor might somehow clock in below $250k FDIC limit and remain insured...
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How certain are you? I need to go poach me some staff… smart people still work there
 
kaiser said:
How certain are you? I need to go poach me some staff… smart people still work there
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If it were me, I'd poach away!

I think most talented, intelligent folks at FRC are going to be picking up the recruiter's calls. Unless they slammed a pitcher of company kool-aid and believe they're going to weather this storm, they're doing the mental math and realizing their employment is headed in 1 of 3 directions with FRC:
(1) FDIC receivership followed by a stint in the unemployment line
(2) Being acquired by a bigger bank as an act of charity during a fire sale, which then leads to a period of stress, job uncertainty and relocation. The acquirer lays people off b/c why have redundant employee roles? So you stick around during a meltdown period and good chance you're fired anyways in the end.
(3) FRC survives and you endure a multiyear stretch of layoffs, rebuilding and rebranding as they try to re-attract depositors who fled them in a hurry -- whilst dealing with headcount that's too big for their asset base. Oh, and any previous SBC you received is now worth... well... nothing (as below chart indicates :eek:)

upload_2023-3-20_17-29-13.png

This is all speculation, of course.

But based on how previous bank blow-ups and acquisitions have happened, it's probably not that far off. If I were an employee at FRC I'd either be polishing my resume and looking for my next opportunity, or alternatively heading to Ace Hardware, buying a sledge hammer and trying to get as much copper out of the office walls before the place folded :)
 
Is the price of copper up?
 
tspear said:
To be fair, Credit Swiss has been a slow moving car crash for about a decade. It would still be a very slow moving crash now if investors did not suddenly get nervous after SVB and Signature.
On the flip side, investors should have been more nervous about Credit Swiss, and really should have been concerned about it a few years ago at a minimum.

Tim
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CS kicked me out about a decade ago for being American. I guess it all worked out for the best.
 
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