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Shares just fell 60%, not this year, but today, which is the biggest drop I can think of. This is after a $1.25B common stock offering in an attempt to shore

Shares just fell 60%, not this year, but today, which is the biggest drop I can think of. This is after a $1.25B common stock offering in an attempt to shore up its cash reserves. Keep in mind they are raising cash by selling equity with their shares at $100 when they were at $500 a less than a year ago. That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house that is currently on fire. Rumour was that SIVB got alot of the old SI deposits when it became clear that they were going bankrupt. It looks like both SI and SIVB will go bankrupt due to the same two causes. The one two punch of: - loan duration mismatches(short term deposits bet against long term loans). More specifically to get some interest income you tend to have to either go to riskier assets, not an option for bank, or longer duration. Unfortunately this locks you into rates for a long term. As everyone knows, rates have really gone up quickly in a short duration. This makes your long duration assets drop alot in value so you can't easily liquidate them to move to new higher paying assets. Normally this would be fine as you can ride out the duration of your long term bets without losing money, except for the second issue below. - and a deluge of withdrawals meaning you can't just ride out your long term loans. The difference here is that while SI will go away, someone will probably buy SIVB. It's just that with FDIC only protecting the first $250,000 in deposits you don't want your corporate money at the bank. And you certainly don't want to wait for FDIC to step in and make you whole. There is a potential third issue with SIVB in that as the bank of alot of silicon valley startups they hold a lot of warrants for those companies on their balance sheet. And those have really been written down alot lately. Stripe, a great company by most measures had its valuation cut in half according to a post from yesterday so you can imagine what the average startup's valuation is worth if strip is being cut in half. SIVB got hit by a lot of different issues all at once but they all had the same root cause, large interest rate hikes in a quick timeframe. The other commonality between SIVB an SI is that both banks heavily concentrated on one sector only, for SI it was crypto and for SIVB it was silicon valley. For each bank they ran into interest rate hikes at the same time that the sectors they relied on took a huge dive in value. Diversification is important.

adam_arthur 4y ago
Re: your duration point, these loans can be sold, either on the open market or a private exchange. Calling it a duration mismatch is a bit misleading. They took on duration risk and their loans lost value is more accurate. Otherwise they would just sell the loans (which they stated they did, but clearly it wasn’t enough thus the equity raise)
- dkrich 4y ago
  Wasn’t enough for what, though? To pay out money deposited with them on a short term basis.
  - adam_arthur 4y ago
    They invested in bonds which lost value, thus they don’t have the money. Nothing to do with duration. Calling it duration driven obscures this pretty simple fact
- chollida1 4y ago
  I'd say it was a duration mismatch. Remember my point was it was a 1-2 punch. 1) their duration mismatch their long term assets lost value, this isn't a problem if you can hold to maturity as you'll get all your money back. 2) people flocked to the bank to pull money out as tech went down, their deposits really fell as those companies needed the cash to fund operations and layoffs. When the demand deposits were required back before the duration of their assets this required them to sell when the assets were already marked down. Does this make my point clearer?
  - adam_arthur 4y ago
    Bonds carry risk. The value declined, thus they don’t have the money. If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus calling it a duration mismatch is misleading. More accurately, they took on a level of duration and credit risk, and it didn’t pay off.
    - 4y ago
supernova87a 4y ago
> That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house that is currently on fire. "Motivated seller!" -- Lionel Hutz
dkrich 4y ago
Is this not a function of awful risk management? They seemingly put an outrageous percentage of depositors money at risk buying long bonds which I’m sure seemed like the best “fail safe” option at the time not thinking that rates would keep climbing. But if other banks don’t have such enormous amounts of money leveraged it seems possible this is a one off case. When rates get hiked as quickly as they have risks that were always there that nobody considered are made obvious.
EVa5I7bHFq9mnYK 4y ago
>> your long duration assets drop alot in value so you can't easily liquidate them That conjecture seems wrong. Sure, 2% 30-y treasuries dropped a lot in value, but you still can easily liquidate them.
- jcbrand 4y ago
  As a bank, you can't easily liquidate them without that showing up as a huge loss, thereby affecting your reserve requirements and potentially making you insolvent. If you don't have to sell them and can keep them to maturity, they don't appear as a loss in your accounting. It's the difference between mark-to-market versus held-to-maturity accounting. If you have to sell, you are forced to mark-to-market. If you don't have to sell, you don't have to account for losses due to bond prices falling in the market.
- chollida1 4y ago
  When we speak of liquidity in the business its not can you sell your asset, its can you sell your asset without moving the price. In 2008 you could sell your MBS at any time, it was just for 10 cents on the dollar, that's not liquidity as we use the term. They sold a chunk of long duration assets for a 1.2B loss because they had to sell them. That's a big loss for the quality of assets they were selling. That is what is mean by hard to liquidate. Its true you can always sell anything. It's can you get a price that keeps you solvent that is the liquidity issue. SIVB wasn't selling 2 and 30 year treasuries, they were selling MBS.
kmlx 4y ago
> Shares just fell 60%, not this year, but today, which is the biggest drop I can think of. just fell another 44% in pre-market after that 60% fall: SVB Financial Group Pre-market 58.60 −47.44 (44.74%)

adam_arthur 4y ago

Re: your duration point, these loans can be sold, either on the open market or a private exchange. Calling it a duration mismatch is a bit misleading. They took on duration risk and their loans lost value is more accurate. Otherwise they would just sell the loans (which they stated they did, but clearly it wasn’t enough thus the equity raise)

dkrich 4y ago
Wasn’t enough for what, though? To pay out money deposited with them on a short term basis.
- adam_arthur 4y ago
  They invested in bonds which lost value, thus they don’t have the money. Nothing to do with duration. Calling it duration driven obscures this pretty simple fact
chollida1 4y ago
I'd say it was a duration mismatch. Remember my point was it was a 1-2 punch. 1) their duration mismatch their long term assets lost value, this isn't a problem if you can hold to maturity as you'll get all your money back. 2) people flocked to the bank to pull money out as tech went down, their deposits really fell as those companies needed the cash to fund operations and layoffs. When the demand deposits were required back before the duration of their assets this required them to sell when the assets were already marked down. Does this make my point clearer?
- adam_arthur 4y ago
  Bonds carry risk. The value declined, thus they don’t have the money. If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus calling it a duration mismatch is misleading. More accurately, they took on a level of duration and credit risk, and it didn’t pay off.
  - 4y ago

supernova87a 4y ago

> That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house that is currently on fire. "Motivated seller!" -- Lionel Hutz

dkrich 4y ago

Is this not a function of awful risk management? They seemingly put an outrageous percentage of depositors money at risk buying long bonds which I’m sure seemed like the best “fail safe” option at the time not thinking that rates would keep climbing. But if other banks don’t have such enormous amounts of money leveraged it seems possible this is a one off case. When rates get hiked as quickly as they have risks that were always there that nobody considered are made obvious.

EVa5I7bHFq9mnYK 4y ago

>> your long duration assets drop alot in value so you can't easily liquidate them That conjecture seems wrong. Sure, 2% 30-y treasuries dropped a lot in value, but you still can easily liquidate them.

jcbrand 4y ago
As a bank, you can't easily liquidate them without that showing up as a huge loss, thereby affecting your reserve requirements and potentially making you insolvent. If you don't have to sell them and can keep them to maturity, they don't appear as a loss in your accounting. It's the difference between mark-to-market versus held-to-maturity accounting. If you have to sell, you are forced to mark-to-market. If you don't have to sell, you don't have to account for losses due to bond prices falling in the market.
chollida1 4y ago
When we speak of liquidity in the business its not can you sell your asset, its can you sell your asset without moving the price. In 2008 you could sell your MBS at any time, it was just for 10 cents on the dollar, that's not liquidity as we use the term. They sold a chunk of long duration assets for a 1.2B loss because they had to sell them. That's a big loss for the quality of assets they were selling. That is what is mean by hard to liquidate. Its true you can always sell anything. It's can you get a price that keeps you solvent that is the liquidity issue. SIVB wasn't selling 2 and 30 year treasuries, they were selling MBS.

kmlx 4y ago

> Shares just fell 60%, not this year, but today, which is the biggest drop I can think of. just fell another 44% in pre-market after that 60% fall: SVB Financial Group Pre-market 58.60 −47.44 (44.74%)