An explainer on what is going on with Silicon Valley Bank:
From GP@uncommon_cap $SVB Financial Group(SIVB)$
An explainer on what is going on with Silicon Valley Bank:
- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021.
- As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio.
- 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%.
- The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield.
- This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually.
- However, yesterday afternoon, SVB announced that they had sold $21bn of their Available For Sale (AFS) securities at a $1.8bn loss, and were raising another $2.25bn in equity and debt. This came as a surprise to investors, who were under the impression that SVB had enough liquidity to avoid selling their AFS portfolio.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
- Ryan_Z0528·2023-03-10TOPFrom what I understand re: SVB: SVB had $189B in deposits in 2021. Some dumb guy in there put $91B into bond markets at 1.63% yield for 10 years. Tech market collapses and SVB private investment portfolio tracking $16B MTM losses (they havent marked down their portfolio yet) Meanwhile fundraising market dries up and startup balances start reducing at alarming rate. Now SVB has to borrow against its $91B to shore up capital adequacy. Prob is they are now borrowing at 5% while getting a yield of 1.6%. So they are issuing $3B of equity to cover the 3.4% shortfall in interest servicing. Hence short selling positions and causing panic in the bank.LikeReport
- XantheJuliana·2023-03-11How could the CEO be on the Federal Reserve board in San Francisco and buy so many bonds at low interest rates? I feel that withdrawals made in 2022 by startups was really what collapsed this company.LikeReport
- YorkTurner·2023-03-11The fed should help them with some sort of bail out. After all we are bailing outLikeReport
- YaleBrewster·2023-03-11Where do big tech like aapl, Amzn, msft, goog, Nflx keep their cash?LikeReport
- YvetteGunther·2023-03-11What happens to all the calls and puts of SIVB?LikeReport
- gcchan90·2023-03-10thanks for the explanantion. but is it a buy now?LikeReport
- BettyT·2023-03-10I am new to this company. Thanks for the info.LikeReport
- LesterTan·2023-03-10Small players will be in danger like 2008 gfc.LikeReport
- mrzhuge·2023-03-10powerLikeReport
- luv2trade·2023-03-10kLikeReport
- Cash88·2023-03-10gLikeReport
- The Amateur·2023-03-10👍LikeReport
- Tiger 88·2023-03-10👍LikeReport
- Llim·2023-03-10OkkkLikeReport
- JeffTai·2023-03-10okLikeReport
- Mooo·2023-03-10OkLikeReport
- tadirazo·2023-03-10Like plsLikeReport
- Jjsh·2023-03-10OkLikeReport
- BigCow·2023-03-10okLikeReport
- Ghai·2023-03-10arightLikeReport