SVB - The Dumpster Fire
So... we gonna talk about it? What are the risks of contagion and risks to the broader industry?
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Luckily they’ve been mostly centered around risk-capital with startups and VCs, so this isn’t like Wells Fargo going insolvent or anything.
However, case could be made that it was similar with Lehman but ideally we’ve learned our lesson on that and the fed can now respond by backstopping the crash in funds flow.
Who knows man, SVB feels like a perfect storm of stuff going wrong but almost every bank is tanking right now
best part is the fed cant lower rates to save things.
Said this in the other thread - I think a big, well capitalized name steps in to take up all the rich wealth management clients / tech commercial banking relationships. A GS or JPM can use brand equity to step in, assuage concerns on viability, and take advantage of what is really a good platform in serious distress.
Totally agree. They had tons of client funds, just got F ed by the moment. Perfect storm for them to collapse
Lol at my BB we have to go through hoops to get $50MM revolver loans approved, imagine trying to convince the debt committee at GS to get a loan to a shitty tech startup with projected negative FCF for the next 10-years.
0 chance any real bank picks up SVB
Yea I mean, I agree I'm sure it's tough at MS to get that kind of stuff done - this was more my "out-there" prediction.
There's a TON of HNW and UHNW personal wealth management accounts from founders who exited and just kept all accounts with SVB. I think that a reputable firm with strong PWM arm like yours or GS would be interested in taking a look. I would at least expect the lights to be on at 1585 and 200 West this weekend, whether Gorman or Solomon actually pull the trigger is something else entirely.
Can't ever recall a company imploding faster. The FDIC took control of SVB this morning. The entity as we know it is already insolvent.
crazy feel bad for those guys rn
I don't think it's the risks people are focused on, but the opportunity to snatch up all the relationships SVB has. It's going to be a feast for the bankers who can pick apart the gems from the crud.
Credit Suisse getting a run for its money on “who is the shittiest bank”
SVB was never a shitty bank. It was always very respected. The above comments captured the situation by calling it a “perfect storm”.
“SVB was never a shitty bank”
dude are you high? They had $200bn of assets and went into receivership within 2 days
that is the definition of a shitty bank - they are the largest blow up since 2009
edit: of course you’re a consultant
We never accepted Letter of Credit from tenants who bank with SVB. We told them to pound sand and give us a top 5 bank. You know why? Because they are the shittiest bank.
Geez. So what happens to Ibankers at SVB Leerink? Are they all unemployed as of today? Likely to get spun off? Have to close down?
May not be "unemployed" atm but payroll is going to seize up real fast. Someone needs to step up and make moves to get acquired unless they all want to go down.
We are currently employed. I would suspect we are acquired as a standalone entity. Or spun out and sponsored. I do not know for sure.
Man, must be tough to keep trucking through the IB grind with the uncertainty. Good luck, hope the MDs do right by the junior team and everybody finds a home.
IDK but imagine being this guy. Literally moved to SVB TMT from GS 2 weeks ago.
https://ir.svb.com/news-and-research/news/news-details/2023/SVB-Securit…
Ugh. I wonder how the lock-ups / non-competes they signed work in the case of insolvency. I'd hope they become null and void and don't prevent senior bankers from finding potential lifeboats that they could hopefully bring a few teammates along on.
Vultures are coming and it’s not the special sits funds lol.
Liz Warren is so horny right now her she can't control herself
I work on a rates desk. Multiple banks across the street have exposure with them, but that is not the real issue here. The real issue is that people are realizing all of these banks had extremely low funding costs for a long time by way of deposits and invested in long dated assets that are now shit (yield on SVBs MBS portfolio was like 1.56% aka dogshit). SVB was the first one but it is possible that there are more that have ran the same strategy albeit with likely less growth. This is where contagion could happen. All the BSDs in capital markets have been on calls all day trying to figure out which banks we cut off and where else we might have exposure. I hope it ends here but at this point it is anyone’s guess.
I just spent my morning running an analysis on several key bank partners (luckily, looks like we're all good) and digging through regulatory reports.
The key piece seems to be that SVB had a ton of securities (long-dated treasuries and MBS) marked as held-to-maturity, which meant they didn't have to mark to market. These things all got wrecked because interest rates have gone up - the FV adjustments (you can find them in the 10-K, etc.) exceeded SVB's equity. So, the moment they had to sell you saw all those losses coming due and wiping out equity. It became a prisoner's dilemma for accountholders - yeah, if you don't pull your money and no one else does, SVB weathers the storm; but on the other hand, if people start pulling deposits you don't want to end up at the back of the queue.
Looks like just about every other banks have taken a walloping on the FV adjustments on long-dated stuff, but (i) their exposure to these securities wasn't as bad (ii) deposits remained steady or even grew (iii) they classified their securities as available-to-sell, so they had already absorbed the losses, from an accounting perspective, and remained solvent.
Wacky stuff.
To the above poster’s point, think this is a major wake up call to all the depositor banks with extremely cost of funding but I don’t think there’s a major risk of systematic contagion like there was in 08. The specific circumstances that caused SVB to collapse were very much a perfect storm.
Exactly right. This was like the playbook for their demise
I also don’t think startups are fucked (minus any issues related to having funds with SVB). Was really an SVB specific problem. Startup valuations aren’t down all that much, and there’s a ton of dry powder, plus startups raised tons of cash in ‘21. Startups are however bleeding cash, so these down rounds should start very soon, especially if they’re having trouble getting their deposits back.
Tbd if startups are screwed. I do think this will create more opportunities for young IPO'd companies being taken private by late-stage buyouts via Thoma Bravo for example.
Because of a distressed landscape?
Valuations aren’t down because they haven’t had to raise down rounds …. Yet. Lot of startups has 100% exposure to SVB cash deposits and their LPs / GPs had a ton of exposure too. If you’re not making payroll next week (because your Vc isnt bailing you out if they have 100 portcos in the same spot and their cash is tied up), then your employees are leaving next Friday on payday. People don’t realize how much financial leverage there is in the system with a 5% reserve requirement. Money multiplier effect is very, very real (especially in a concentrated industry) and the reverse of the multiplier is very true as well on the contraction
Very good points. It’s not like these funds are inaccessible though, correct? VCs and startups can get at least a large portion of their funds back soon I would think. If you look at proxies for what startups are valued at, they’re not in awful shape, though. Although that’s fair that it’s hard to say if the round hasn’t happened.
Fed just announced they will be covering all of the non-insured deposits and making everyone whole.
Rippling who does HR and Payroll are not able to process paychecks for all of their clients (tech companies). Rippling processed payments through SVB.
S&P had them rated at BBB 😂
That’s a terrible rating for a bank as an FYI. Anything below an A for a company that regulated is pretty suspect.
BBB is still investment grade. Is it a turn worse that the average national bank (A rated). Pretty in line with other regional banks. Nevertheless, BBB is not a rating you give to a speculative bank servicing a speculative part of the market (startups). Definitely not the rating you give to an undercapitalized bank with any tangible possibility of default. One agency actually just upgraded them to A- last quarter too after doing a wholistic review with non-public information. Even if BBB is worse than the average bank, it did not reflect the credit risk/profile of SVB accurately and that should be quite clear.
Realistically how much will firms be able to get of their original amount? 50%? I imagine SVB sold the securities that had recorded lower losses in the hopes they could ride out losses on older, lower rate ones until they reached maturity.
Think that’s right. They sold whole available for sale portfolio, which I’m guessing took fewer losses given shorter maturity/more liquid. HTM portfolio was very underwater.
Not how it works I think.
Banks have to say upfront how they account for their bonds. If categorised as AFS then mark to market. If HTM then not. Cant start selling HTM before maturity without having to mtm the whole bunch (=wipe out the equity).
So it’s really a treasury / cash flow planning question: AFS portfolio needs to cover ST needs alongside normal maturity of the HTM portfolio.
If everyone runs & bank needs to start selling from the HTM portfolio: game over.
Also, if your portfolio has 10 year duration, not only do you take a 10% loss (=2x your equity at 5% capital ratio), but you’re short on liquidity to face your claims as you’re selling at a discount.
Monday will be interesting, every bank around is going to start putting out statement explaining how their own HTM portfolio is immaterial in size relative to SVB (which is probably true TBH)
So what are you saying. How much of the deposits will be untenable?
Maybe this is DJ D-Sol's chance to get a functional bank for pennies on the dollar.
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