Silicon Valley Bank Collapses

[EEVblog]

news just in- Silicon Valley venture capital loss
patreon and others  tech venture capital loss

How is Patreon involved?

Who do (did) they bank with?

Well I assume that if they are involved. But anyone got a link?

[SiliconWizard]

I also have read hints that Patreon was linked to SVB, but I can't find any definite proof of that. This far, Patreon seems to be silent about it.

[EEVblog]

Roko, Rublox caught short

https://techcrunch.com/2023/03/11/roku-roblox-and-others-disclose-their-exposure-to-svb-in-sec-filings/

[jpanhalt]

There will certainly be a ripple effect.  An article on Market Watch compared several US national banks.  Unfortunately, it has decided to restrict access to that article now to subscribers only.  I really do love capitalism. (no sarcasm intended)

One of the metrics it used was AOCI

Accumulated Other Comprehensive Income (AOCI) are special gains and losses that are listed as special items in the shareholder equity section of a company's balance sheet.

Clear as mud, but SVB had a very large percentage of net as AOCI.  I spent a little time today checking my banks.  You can find the AOCI quite easily.

As for FDIC, there are some things to be aware of:
1) When a bank fails, all deposits per depositor are lumped, e,g,, CD's, savings, and checking for the limit for the same account type and holder.
2) An IRA is a different type, so far as I know (no guarantee).
3) FDIC may not cover interest anticipated on instruments such as CD's and payment can take quite a while.
4) Relative to #3, if you have an IRA and are subject to MRD, you may want to consider the effects of a late payment.  I am looking into that tomorrow (Monday).
5) One way to extent the limit is to add individuals (e.g,, children) as beneficiaries on death.  That can get you to 1$million aggregate (again, that is not financial advice).

As financial markets in the US showed dramatically in 2009, it is a house of cards.

[TimFox]

The Silicon Vallen Bank (SVB) failure is particularly nasty.
According to the NY Times, not only tech companies are involved, but also the better winemakers in California.
Normally, the US FDIC closes the bank, freezes its assets, and then arranges for a solvent bank to take over the business.
The FDIC had to close SVB before the close of business
The failure of Washington Mutual in 2008 (which apparently kicked off a large series of failures) resulted in the fire sale of the assets to J P Morgan Chase.
Only 24% of WaMu's deposits were not FDIC insured, but 87% of SVB's deposits are uninsured.
As of this writing, apparently no bank has agreed yet to the acquisition (although J P Morgan Chase may well be the solution).
SVB is now the second-worst failure in the US, trailing WaMu in 2008.
WaMu's problems were tied to property lending, i.e. subprime mortgages, but SVB's problem is different.
The government predicts depositors will be good on Monday, and are talking about the full deposits amount, but denying it's a bailout.
There seems to be another pile of cash, not in the FDIC but at the Federal Reserve, with which I was not acquainted.

[SiliconWizard]

3 months ago:

https://techcrunch.com/2022/12/08/spend-management-startup-tripactions-secures-400m-in-credit-facilities-from-goldman-sachs-svb/

[Stray Electron]

Official reports that something like 95%+ of accounts were not covered under FDIC insurance. i.e. greater than $250k.

By my calculations, ~86% of overall deposits were uninsured.  For all the details, I've attached their Dec 2022 call report.  The information on why they failed (off balance-sheet losses wiped out capital reserve) is on forms RC and RC-B and the info on uninsured deposits is on form RC-O.  They had $151B in uninsured out of a total of $175B.

 One of my family members is on the inside of this mess (I'm not allowed to say how) but I can tell you that this has completely torpedoed a lot of SVB's commercial customers and they are SCRAMBLING to find other loans or investors and i suspect that most of them will be going out of business shortly.  As others have already pointed out MOST of the money deposited in SVB is well in excess of the $250,000 FDIC per account insurance limit so a great many of the SVB's customers are probably not going to get their money back.  Everyone involved is hoping that the US Gov will FULLY insure all of the deposits but I don't think that that's going to happen. Also several US politicians have already announced their opposition to such a move. Even if it does it will take months before the depositors get the money.  I think that this will cause a lot of the smaller companies to fail and I'm wondering what effect that will have on other Silicon Valley companies and other US companies, suchas say someone such as one of the chip suppliers that supplies chips to Ford.  I'm also wondering if this will precipitate a run on some of the other weaker banks.

  Monday is likely to be an interesting day!  I think this whole business could very quickly go sideways!

[EEVblog]

Official reports that something like 95%+ of accounts were not covered under FDIC insurance. i.e. greater than $250k.

By my calculations, ~86% of overall deposits were uninsured.  For all the details, I've attached their Dec 2022 call report.  The information on why they failed (off balance-sheet losses wiped out capital reserve) is on forms RC and RC-B and the info on uninsured deposits is on form RC-O.  They had $151B in uninsured out of a total of $175B.

 One of my family members is on the inside of this mess (I'm not allowed to say how) but I can tell you that this has completely torpedoed a lot of SVB's commercial customers and they are SCRAMBLING to find other loans or investors and i suspect that most of them will be going out of business shortly.  As others have already pointed out MOST of the money deposited in SVB is well in excess of the $250,000 FDIC per account insurance limit so a great many of the SVB's customers are probably not going to get their money back.  Everyone involved is hoping that the US Gov will FULLY insure all of the deposits but I don't think that that's going to happen. Also several US politicians have already announced their opposition to such a move. Even if it does it will take months before the depositors get the money.  I think that this will cause a lot of the smaller companies to fail and I'm wondering what effect that will have on other Silicon Valley companies and other US companies, suchas say someone such as one of the chip suppliers that supplies chips to Ford.  I'm also wondering if this will precipitate a run on some of the other weaker banks.

  Monday is likely to be an interesting day!  I think this whole business could very quickly go sideways!

Yellen has already said there will be no bailout.
If they find a buyer (the government will no doubt offer a sweet deal) then everything goes back to normal.
Otherwise it's sounding like the big despositors will get a substantial haircut. I'm hearing talk of a $20BN shortfall.
A lot will depend if assets have to be marked to market or not.

In any case, all depositors will have access to at least $250k FDIC this morning, but for the big business that's not even going to pay a weeks wages. So if all their operating cash was tied up there, they won't be able to make payroll until a sale is made.

[bdunham7]

WaMu's problems were tied to property lending, i.e. subprime mortgages, but SVB's problem is different.

SVB actually choked mostly on MBS (mortgage backed securities) but the the problem wasn't credit quality, it was duration/interest rate causing the current (market) value to drop.  Because they had opted to designate these as HTM (hold to maturity) they weren't required to account for the interim drop in value on their balance sheet.  Once they had to sell them to cover the deposits, the manure hit the spreader tines.

There's an nice explanation from JP Morgan along with a comparison showing that SVB is(was) an outlier regarding losses in held securities (they had an unusually large amount) but that sort of glosses over the fact that lots other banks may have similar issues with their own internally-generated loan portfolio and none of them have to attempt to mark those to market.  The picture from the .pdf shows their capital ratio from the balance sheet (blue) and then their capital ratio taking into account unrealized losses on HTM securites. 



https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf

[EEVblog]

Reports on Twitter that a "bailout" has happened. All deposits of any value have been guaranteed.

[bdunham7]

Otherwise it's sounding like the big despositors will get a substantial haircut. I'm hearing talk of a $20BN shortfall.
A lot will depend if assets have to be marked to market or not.

The assets (UST, MBS and their loan portfolio plus the real estate and furniture) don't get marked to market, they get marketed now, either as a whole, in large pieces or small pieces.  The UST and MBS parts apparently have a current duration of 6.2 years (according to random chatter and unreliable sources) and their own loan portfolio is unknown to us at this point.  Their overreliance on securities actually makes it a bit easier because the price of those is easily determined and this will allow the FDIC to give back good chunk (maybe half) of the uninsured money right away.  However, the insured deposits are paid first and the FDIC isn't Santa Claus--that money comes out of those same assets.
Then their loan portfolio is going to have to be liquidated and that will be at substantial discounts.     

[bdunham7]

Reports on Twitter that a "bailout" has happened. All deposits of any value have been guaranteed.

Yes, and another bank has been siezed (on a Sunday!) and is the third largest failure in US history.  Signature Bank NY.  I can't see exactly what went wrong with it at the moment.  Three banks in one week and they all start with "Si".  Hmmmm.

[Black Phoenix]

https://apnews.com/article/silicon-valley-bank-bailout-yellen-deposits-failure-94f2185742981daf337c4691bbb9ec1e

The U.S. government took extraordinary steps Sunday to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring all depositors at the failed financial institution that they would be able to access all of their money quickly.

The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread, and only hours before trading began in Asia. Regulators had worked all weekend to try and come up with a buyer for the bank, which was the second largest bank failure in history. Those efforts appeared to have failed as of Sunday.

In a sign of quickly the financial bleeding was occurring, regulators announced that New York-based Signature Bank had failed and was being seized on Sunday. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history.

Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.

Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.

[EEVblog]

A bailout thar's not a bailout
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm
They knew the systemtic risk.

Problem is, anyone with any sense at all will immediatley withdraw every cent from SVB. In which case where would the $20BN shortfall come from?

[bdunham7]

Problem is, anyone with any sense at all will immediatley withdraw every cent from SVB. In which case where would the $20BN shortfall come from?

I don't know that they will since it takes a fair amount of work to switch banks if you are a medium-ish or larger company.  The shortfalls in general are going to be covered for a little while by the new program that will loan money to banks against their securities at par value, not market value.  IOW, the shortfall will come from a loan for more than the collateral is presently worth.

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm

[SiliconWizard]

More band-aid.

[coppice]

More band-aid.

Cue Bob Geldof.......

"I don't like Mondays....."

[EEVblog]

I don't know that they will since it takes a fair amount of work to switch banks if you are a medium-ish or larger company.  The shortfalls in general are going to be covered for a little while by the new program that will loan money to banks against their securities at par value, not market value.  IOW, the shortfall will come from a loan for more than the collateral is presently worth.

Yes, if they do marked to market they are going to come up hugely short, to the tune of 10's of billions.

[coppice]

I don't know that they will since it takes a fair amount of work to switch banks if you are a medium-ish or larger company.  The shortfalls in general are going to be covered for a little while by the new program that will loan money to banks against their securities at par value, not market value.  IOW, the shortfall will come from a loan for more than the collateral is presently worth.

Yes, if they do marked to market they are going to come up hugely short, to the tune of 10's of billions.

Only 10's? That's loose change to these people.

[VK3DRB]

SVP is just the start. It is different this time... the Russian war, the Chinese COVID virus and this which is the most alarming... https://www.usdebtclock.org/
The virus can "controlled" and the Russians will be defeated. But who is going to pay back this spectacular amount of debt? Your retirement funds, savings and assets will, as per the bank and real estate crashes of 1893 and the stock market crash of 1929.

Its coming very soon.

[EEVblog]

I don't know that they will since it takes a fair amount of work to switch banks if you are a medium-ish or larger company.  The shortfalls in general are going to be covered for a little while by the new program that will loan money to banks against their securities at par value, not market value.  IOW, the shortfall will come from a loan for more than the collateral is presently worth.

Yes, if they do marked to market they are going to come up hugely short, to the tune of 10's of billions.

Only 10's? That's loose change to these people.

But it was enough for then to try and raise capital which then started a run on the bank.
I have a summary:
https://twitter.com/eevblog/status/1635125815175413761

I can't believe  they didn't have a chief risk officier for 9 months, that's insane.

[EEVblog]

Its coming very soon.

Buckle up Dorothy.

[BravoV]

When you gambled, and lost, but government keeps saving your a$$, what stopping you, me and all of us to keep gambling ? 

Watch the deep state's spin doctors work hard trying to morph the word "bail out", into something that sounds like not a bail out, but it is still a bail out. 

[tom66]

Watch out for that bail in legislation. There are some interesting conditions which have been added to bank conditions in the last 3 or 4 years. Things like them reserving the right to refuse deposits. So far they don't seem to have given any indication about the scale of balance they are likely to refuse.

I suspect that if one of the big UK banks had any serious trouble, it would be the end of London as a major financial centre, and perhaps the UK. The government had issues coping with RBS last time. Another of the big banks being in trouble, when the government's own borrowing status is not in great shape, is probably something they just couldn't cope with.

This has nothing to do with banks refusing to pay out. The FSCS is a government arm and covers people about 3-6 months after a bank collapse.

If a UK bank fails catastrophically, the UK government will magic the money up.  The alternative of allowing depositors to lose out is far too costly because as you note, it would be the end of banking in the UK.  There is a reason major governments guarantee depositor funds, they want a functional banking system.

I don't recall the government "struggling" with RBS.  IIRC the total net cost to the taxpayer in the end for all of the 2008 bailouts was £27bn at last count (https://fullfact.org/economy/1-trillion-not-spent-bailing-out-banks/).  Not small change but hardly beyond the realm of government spending.

[iMo]

https://www.nytimes.com/2023/03/12/business/signature-bank-collapse.html