Silicon Valley Bank: Where the Bond and Tech Crashes Collide

The Australian Financial Review2023-03-10

Wall Street was on edge overnight with the news that Silicon Valley Bank would be forced to go cap in hand to investors to raise capital. The $US2.3 billion ($3.5 billion) injection was required to ...

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The $US2.3 billion ($3.5 billion) injection was required to ...</p>\n\n<a href=\"https://www.afr.com/markets/equity-markets/silicon-valley-bank-where-the-bond-and-tech-crashes-collide-20230310-p5cr0d\">Source Link</a>\n\n</div>\n","source":"afr_stock","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Silicon Valley Bank: Where the Bond and Tech Crashes Collide</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSilicon Valley Bank: Where the Bond and Tech Crashes Collide\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-03-10 10:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.afr.com/markets/equity-markets/silicon-valley-bank-where-the-bond-and-tech-crashes-collide-20230310-p5cr0d><strong>The Australian Financial Review</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Wall Street was on edge overnight with the news that Silicon Valley Bank would be forced to go cap in hand to investors to raise capital. The $US2.3 billion ($3.5 billion) injection was required to ...</p>\n\n<a href=\"https://www.afr.com/markets/equity-markets/silicon-valley-bank-where-the-bond-and-tech-crashes-collide-20230310-p5cr0d\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://www.afr.com/markets/equity-markets/silicon-valley-bank-where-the-bond-and-tech-crashes-collide-20230310-p5cr0d","article_id":"2318574247","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2318574247","pubTimestamp":1678415506,"columns":[],"sourceInfo":{"source_id":"afr_stock","name":"The Australian Financial Review"},"weMediaInfo":null,"summary":"Wall Street was on edge overnight with the news that Silicon Valley Bank would be forced to go cap i","collect":0,"end_time":0,"defaultTopTitle":"afr.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"硅谷银行：债券和科技崩溃的地方","themeId":"fb137177b54440df95cc68d1e0268d1b","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SIVB":0.9},"content_text":"Wall Street was on edge overnight with the news that Silicon Valley Bank would be forced to go cap in hand to investors to raise capital. The $US2.3 billion ($3.5 billion) injection was required to plug a hole in its balance sheet to cover losses on a fire sale of safe assets.Shares in SVB’s holding company SVB Financial plunged 60 per cent on the news but even some of Wall Street’s biggest banking names felt the reverberations with shares in other major lenders selling off.Bank of America, Wells Fargo and JPMorgan were all 5 per cent lower overnight.Wall Street contagion: US bank stocks have been hit by the troubles at SVB. APBut how this situation came to be tells us much about how messy the great unwind of cheap capital can get and how Silicon Valley Bank has found itself squeezed on both sides of its balance sheet.Silicon Valley Bank carved out a niche as the trusted banker to the start-up world (including several Australian-backed ventures).As tens of millions of dollars a quarter were raised by venture funds to invest in their start-ups, the money found its way into SVB accounts.SVB in turn did what most banks do and invested its customer deposits in a combination of loans and safe interest-bearing assets, such as US government bonds.As the money flowed in, SVB reaped the rewards, earning the difference between the near zero deposit rates it paid start-ups on their transaction accounts, and the modest but rising yields on its bond portfolio.But, as we know, the party has stopped.The scourge of inflation has forced central bankers to aggressively raise interest rates, and the increase in the cost of money forced sharemarkets to reconsider the companies that are only expected to make money well into the future. That in turn infected the VC world as moonshot venture bets have been rapidly scaled back.The slowdown in venture fund raisings has meant less money flowing into SVB deposit accounts. But that’s not all. The existing SVB customers haven’t been able to slow their cash burns and that has further drained money out of the bank.AdvertisementWhen a bank’s customer spends or withdraws money, that bank has to finance the withdrawal. In normal times, when the deposits are still coming in, new deposits can fund withdrawals.But the withdrawals are overwhelming the deposits, and for a bank, that means it must liquidate the safe assets it holds specifically for this purpose.That’s usually not a problem. But it is now.The bank’s safe for-sale assets are held in a portfolio of short-term safe government bonds.Bonds awayWhile there’s no chance these bonds will default, their face values have taken a hit as it becomes apparent the Federal Reserve’s inflation fight is not done yet, and interest rates are heading higher. (When interest rates go up, bond prices go down)So a forced seller will have to take a loss, and SVB has been forced to sell $US21 billion of bonds which have an average duration of 3.6 years and a yield of 1.8 per cent.That’s well below the 2-year yield of about 5 per cent, so it’s going to cop a $US1.8 billion loss.(If you want to sell a bond that pays 1.8 per cent when the market rate is 5 you have to sell it at a much lower capital price so that the buyer earns the prevailing rate. To demonstrate a US 3 to 7 year bond fund has lost about 8 per cent in price terms over 12 months.)SVB now needs to raise $US1.25 billion via a stock placement and another $500 million in convertible bonds to plug this gap. The plan is to reinvest the proceeds of the $21 billion of bonds at the current market rate, and it hopes to earn the current higher cash rate of 4 to 8 per cent.The bank says it has $US212 billion of assets of which 62 per cent is in high quality fixed income securities and cash, and just 35 per cent in the form of loans to customers.That means it actually has a much healthier loan to deposit ratio than other US banks, and its claims to have plenty of liquidity.But the revelation of the bond losses and the need to raise capital has clearly spooked the market.Should we expect that other big banks will face a similar problem?It’s hard to see why. The woes of the venture world aren’t reflective of the broader US economy which is running hot and at near full employment. If anything they’re flush with deposits and aren’t likely to be forced into a liquidation of its bond portfolios.The bank’s troubles say more about the state of venture capital portfolios, and the inability of start-ups to moderate their cash burn and make actual profits. That’s where the pain will almost certainly be felt.","kind":"highlight","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":19,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2318574247"}