3 ms·

SVB is inderwater not only because of tech decline, but mostly because they bought huge amount of agency MBS at the generational high prices (during low rates),

by slt2021 4y ago

SVB is inderwater not only because of tech decline, but mostly because they bought huge amount of agency MBS at the generational high prices (during low rates), thus tying lot of capital for a very long time. If they were to sell those MBS today to get cash, bank’s equity would be wiped out Source: https://twitter.com/ragingventures/status/1615826088038473733?s=46&t=ZACeP3X-ZelzZfMwWOr1wA https://twitter.com/ragingventures/status/161582608803847373...

fairity 4y ago
I wonder if a bank run (triggered by this news) could force them to liquidate that portfolio.
- slt2021 4y ago
  liquidating HTM will mean bankruptcy, because bank will realize mark to market losses on MBS that exceed equity. They will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot. Even if bank will go bankrupt and sold to another buyer - new owner will still have to hold onto these MBS
  - JumpCrisscross 4y ago
    > will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot No, they’ll hold them to maturity and get back their principal.
    - cameldrv 4y ago
      With what funds are they going to hold them to maturity? Are the depositors going to be willing to finance these bond purchases with zero interest deposits indefinitely when they could be earning more interest at another bank?
paganel 4y ago
Very interesting link. I found this [1] pretty interesting: > $SIVB's HTM securities had mark-to-market losses as of Q3 of $15.9 b...compared to just $11.5 b of tangible common equity!! > Luckily, regulators do not force $SIVB to mark HTM securities to market. But the bank would be functionally underwater if it were liquidated today. 5/10 [1] https://twitter.com/RagingVentures/status/1615826094271217664 https://twitter.com/RagingVentures/status/161582609427121766...
cameldrv 4y ago
If you mark the bonds to market, the bank's equity is wiped out, and logically, that's what you should do. Given that the law allows them not to if they're HTM, you get the same result, just with some delay. Their deposits are short term, and will leave the bank if SVB is not providing competitive interest rates. They cannot afford to pay competitive interest rates if they've loaned out the deposits at a lower rate than depositors now expect. Once depositors realize this, it's a classic bank run scenario. They know that without help, the bank goes bust, and there's no point in taking any significant risk with bank deposits that aren't even paying any interest, so they take them out. As more people withdraw, the chance of a failure increases, and more people withdraw, etc.

fairity 4y ago

I wonder if a bank run (triggered by this news) could force them to liquidate that portfolio.

slt2021 4y ago
liquidating HTM will mean bankruptcy, because bank will realize mark to market losses on MBS that exceed equity. They will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot. Even if bank will go bankrupt and sold to another buyer - new owner will still have to hold onto these MBS
- JumpCrisscross 4y ago
  > will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot No, they’ll hold them to maturity and get back their principal.
  - cameldrv 4y ago
    With what funds are they going to hold them to maturity? Are the depositors going to be willing to finance these bond purchases with zero interest deposits indefinitely when they could be earning more interest at another bank?

paganel 4y ago

Very interesting link. I found this [1] pretty interesting: > $SIVB's HTM securities had mark-to-market losses as of Q3 of $15.9 b...compared to just $11.5 b of tangible common equity!! > Luckily, regulators do not force $SIVB to mark HTM securities to market. But the bank would be functionally underwater if it were liquidated today. 5/10 [1] https://twitter.com/RagingVentures/status/1615826094271217664 https://twitter.com/RagingVentures/status/161582609427121766...

cameldrv 4y ago

If you mark the bonds to market, the bank's equity is wiped out, and logically, that's what you should do. Given that the law allows them not to if they're HTM, you get the same result, just with some delay. Their deposits are short term, and will leave the bank if SVB is not providing competitive interest rates. They cannot afford to pay competitive interest rates if they've loaned out the deposits at a lower rate than depositors now expect. Once depositors realize this, it's a classic bank run scenario. They know that without help, the bank goes bust, and there's no point in taking any significant risk with bank deposits that aren't even paying any interest, so they take them out. As more people withdraw, the chance of a failure increases, and more people withdraw, etc.