To The Moon

SIVB debenacle on 09 Mar 2023 (Thu)

If you invest in US stock market, its assumed that you will keep tab of US stock market news.

And if that is true, then you would have learnt how a “modern 21st century” bank run would look like.

SIVB stock price on 08 Mar 2023 was $267.83

• In just one day (09 Mar 2023), Silicon Valley Bank (Ticker: SIVB) stock price has fallen by a whooping -60.40%

• What was the root cause ? Look at the stock price again closely; there’s something to be learnt.

• For certain, if there are any issues with this bank - they have been brewing for a while

• The stock price has been trending downwards for better part of the 1-year time frame..

• Based on wikipedia, Silicon Valley Bank is a US commercial bank

• It is the biggest bank in Silicon Valley based on local deposits.

• Its “unique” business model is based on collecting deposits from businesses financed through venture capital.

• Overtime the business model evolved & expanded into banking and financing venture capitalists themselves

• One of its 1990s success story was its early venture capital investment in Cisco Systems

• By 2011, the bank had helped fund more than 30,000 start-ups; a potential red-flag in the making ?

• As a crucial lender for early-stage businesses, SVB is the banking partner for nearly 50% of US venture-backed technology and healthcare companies, listed on stock markets in 2022.

• In a regular update to investors, CEO Becker has reported that “client cash burn has remained elevated and increased further in Feb 2023, resulting in lower deposits than forecasted".

• Given the current challenging economic climate, every business (in the world) is just chugging along until the good times is back.

• In a bid to shore up its balance sheet, on 09 Mar 2023, SVB decided to launch a $1.75 Billion share sale.

• In the prospectus, it detailed that the proceeds will be used to plug a $1.8 Billion hole caused by the sale of a $21 Billion loss-making bond portfolio consisting mostly of US Treasuries.

• The bond portfolio’s yield was an average 1.79%; way below current US 10 years Treasury notes with a yield of around 3.9%.

• During good times, no one would have batted an eyelid over such exercise

• Unfortunately, now is not a good time; given the ever increasing interest rate.

• Investors in SVB's stock fretted over whether the capital raise would be sufficient given the deteriorating fortunes of many technology startups that the bank serves.

• What exacerbated and made the situation worse was “Finance guru” Peter Thiel’s Founders Fund and other prominent venture capitalists’ advised portfolio businesses to withdraw their money from SVB.

• This has caused wide spread “ripple” panic and a run on the bank ensued.

• In just one session (09 Mar 2023), $61 Billion (in stock market value) from 18 banks making up the S&P 500 banks index (.SPXBK) have been wiped off in one swoop

• This included a $22 Billion drop in the value of $JPMorgan Chase(JPM)$. Yes, even un-related bank stock like JP Morgan was not spared.

• There is without a doubt that this contibuted to the -1.85% decline in the S&P 500 Index.

• Yesterday was only Day-01 of this fiasco.

• The fate of SVB is still being played out as this post is being composed.

• Damage control is under way as well.

• SVB's CEO Gregory Becker has been calling clients to assure them their money with the bank is safe, according to two people familiar with the matter.

• Private equity firm General Atlantic in a bid to exhibit support, will be buying $500 Million worth of SIVB shares.

• Others like Investment adviser Payden & Rygel’s Natalie Trevithick (Hd, Investment grade credit strategy) has mentioned that SIVB's bonds were not doing as poorly as equity.

  Its equity’s future performance will be news dependent. Recovery will be in the medium to long term.

• Wedbush Securities’s analyst - David Chiaverini said the bank had received significant proceeds from selling securities and raising capital. It does not believe SIVB is in a liquidity crisis".

• Although the issue centred squarely on Silicon Valley Bank, US bigger banks have not been spared from its damaging ripple effects

• Just take a look at a sampling of the Top 10 US banks yesterday’s closing. The decline ranged from -3.86% to -6.20%.

• What else do you see ?

Do you see the Silver Lining in the sky ?

• While the fate of SVB and US banking stocks are left to be seen on Day-02, there is a lot to be said about the opportunities presented as a result of this incident.

• Patient bargain hunters may be rewarded at the right time; with the “right” price

• What is certain is that there will be a further interest hike to be announced on 21 Mar 2023 (Tue); at the end of the 2 day FOMC meeting. This is definitely a boon for US banks.

• Rounding off, US central bank (The Fed) has not even commented on the incident or issue any statement surrounding SVB. What does this imply ?

• Perhaps it is not that big a deal (??) as Wall Street has made it out to be ? That’s a possibility, right ?

• Do you think you will take a leap of faith and invest in any of the Top 10 US banks now that opportunity have presented itself on an opened platter ?

• Do you think US banking stocks will continue to fall today and maybe next week ? OR will it stage its recovery ?

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