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https://www.prnewswire.com/news-releases/svb-hires-kim-olson-as-chief-risk-officer-301711529.html https://www.prnewswire.com/news-releases/svb-hires-kim-olson..

https://www.prnewswire.com/news-releases/svb-hires-kim-olson-as-chief-risk-officer-301711529.html https://www.prnewswire.com/news-releases/svb-hires-kim-olson... - Jan 2023 The previous CRO resigned in April 2022.

g42gregory 4y ago
Wow. I am guessing they discovered this mess in early 2022. The CRO bailed or was pushed out. They couldn't hire anyone qualified, once they've seen the balance sheet (or were refused to be shown the balance sheet, which would be a red flag). Tried to unwind the position throughout the 2022, but couldn't, with the rising interest rates.
- pgwhalen 4y ago
  This is an interesting story but I'm not sure it adds up. What does it mean that they "tried to unwind the position"? It doesn't really make sense that you could fail to unwind a position in some of the most liquid markets in the world, over the course of a year. Maybe it wouldn't be at the desired price, but if they understood the risk as you imply, they'd just do the trade.
  - tomca32 4y ago
    What are you going to do with MBS that aggregated averaged a yield of 1.5% when anyone can get a risk free bond returning over 3% now? Who’s going to buy your mortgages?
    - zamfi 4y ago
      This didn't happen all of a sudden -- it took place over months! Sure, now it's a pickle, but it didn't turn into a pickle from one day to the next.
    - hnfong 4y ago
      You sell them at a discount of (duration * 3.x%-1.5%), so that the hold to maturity interest rate remains at the market rate of 3.x%
  - g42gregory 4y ago
    You would be able to unwind these positions gradually and the markets are relatively liquid for MBS and super liquid for T-Bonds. The problem is that you would be unwinding these positions after the interest rates have moved up, i.e. at a tremendous loss. Rates go up - bond prices go down and your assets are not worth as much. They did not want to do this right away and book a few billion in losses. It would be a hard decision for anyone to make. They bet that the rates will move lower soon but, instead, the rates went higher still. Now, if SVB could wait 10 years to maturity, everything would have been fine. But SVB is a bank and customers demanded money right now. They could not meet their obligations without immediate selling at a tremendous loss.
  - PeterisP 4y ago
    Unwinding the position in early 2022 would mean acknowledging and executing a huge loss back then. Not unwinding the position means taking a gamble that perhaps it all will work out or perhaps you'll go insolvent. Apparently they chose the latter, and perhaps that's related with the CRO quitting if they disagreed with that choice.
    - pgwhalen 4y ago
      Right, risk management is often about taking a huge loss, so that it doesn’t become an existential one. Clearly risk management was poor here. I only took exception to the idea that they “tried to unwind the position,” which is clearly untrue. There would be willing buyers at the right price.
IG_Semmelweiss 4y ago
this is incredible. As chief risk officer, going into a public company that goes bad not even 2 months after being hired -for strictly risk mismanagement, not fraud- tells you all you need to know about the competency of the person being hired. EDIT: Sincerely curious about downvotes: You are interviewing for a CTO job. As part of the process, you get unrestricted access to prod codebase. The stack/ libraries are something you are very familiar. You find out the software will be a critical component to make payments to people worldwide. Its a high profile project. You are the public face of the software that must go live very soon, no one can tell for sure, but its imminent. Your (interview) prep finds a dumpster fire. There's no way this thing will even run. The entire thing is not salvageable. Do you take the job ?
- deleted 4y ago
  [deleted]
- causality0 4y ago
  The best parachute in the world won't help you if you open it when you're ten feet from smashing into the ground.
  - clownvorld 4y ago
    depends on the origin of said parachute
  - csteubs 4y ago
    This. Better to pull the parachute than wait for the federal retrorockets.
- lp0_on_fire 4y ago
  Any organization of that size will have inertia and the damage was already done by the time they got there.
  - jaycroft 4y ago
    I think the parent is saying that the new CRO is bad not because they caused the dumpster fire - the new CRO is bad because after interviewing in January, they saw the dumpster fire and either thought it didn't matter, or that they could fix it. Not a case of "incompetent because they couldn't fix the problem", instead a case of "must be incompetent because they saw the books but took the job anyway".
thewarpaint 4y ago
Source: https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/amp/ https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...

g42gregory 4y ago

Wow. I am guessing they discovered this mess in early 2022. The CRO bailed or was pushed out. They couldn't hire anyone qualified, once they've seen the balance sheet (or were refused to be shown the balance sheet, which would be a red flag). Tried to unwind the position throughout the 2022, but couldn't, with the rising interest rates.

pgwhalen 4y ago
This is an interesting story but I'm not sure it adds up. What does it mean that they "tried to unwind the position"? It doesn't really make sense that you could fail to unwind a position in some of the most liquid markets in the world, over the course of a year. Maybe it wouldn't be at the desired price, but if they understood the risk as you imply, they'd just do the trade.
- tomca32 4y ago
  What are you going to do with MBS that aggregated averaged a yield of 1.5% when anyone can get a risk free bond returning over 3% now? Who’s going to buy your mortgages?
  - zamfi 4y ago
    This didn't happen all of a sudden -- it took place over months! Sure, now it's a pickle, but it didn't turn into a pickle from one day to the next.
  - hnfong 4y ago
    You sell them at a discount of (duration * 3.x%-1.5%), so that the hold to maturity interest rate remains at the market rate of 3.x%
- g42gregory 4y ago
  You would be able to unwind these positions gradually and the markets are relatively liquid for MBS and super liquid for T-Bonds. The problem is that you would be unwinding these positions after the interest rates have moved up, i.e. at a tremendous loss. Rates go up - bond prices go down and your assets are not worth as much. They did not want to do this right away and book a few billion in losses. It would be a hard decision for anyone to make. They bet that the rates will move lower soon but, instead, the rates went higher still. Now, if SVB could wait 10 years to maturity, everything would have been fine. But SVB is a bank and customers demanded money right now. They could not meet their obligations without immediate selling at a tremendous loss.
- PeterisP 4y ago
  Unwinding the position in early 2022 would mean acknowledging and executing a huge loss back then. Not unwinding the position means taking a gamble that perhaps it all will work out or perhaps you'll go insolvent. Apparently they chose the latter, and perhaps that's related with the CRO quitting if they disagreed with that choice.
  - pgwhalen 4y ago
    Right, risk management is often about taking a huge loss, so that it doesn’t become an existential one. Clearly risk management was poor here. I only took exception to the idea that they “tried to unwind the position,” which is clearly untrue. There would be willing buyers at the right price.

IG_Semmelweiss 4y ago

this is incredible. As chief risk officer, going into a public company that goes bad not even 2 months after being hired -for strictly risk mismanagement, not fraud- tells you all you need to know about the competency of the person being hired. EDIT: Sincerely curious about downvotes: You are interviewing for a CTO job. As part of the process, you get unrestricted access to prod codebase. The stack/ libraries are something you are very familiar. You find out the software will be a critical component to make payments to people worldwide. Its a high profile project. You are the public face of the software that must go live very soon, no one can tell for sure, but its imminent. Your (interview) prep finds a dumpster fire. There's no way this thing will even run. The entire thing is not salvageable. Do you take the job ?

deleted 4y ago
[deleted]
causality0 4y ago
The best parachute in the world won't help you if you open it when you're ten feet from smashing into the ground.
- clownvorld 4y ago
  depends on the origin of said parachute
- csteubs 4y ago
  This. Better to pull the parachute than wait for the federal retrorockets.
lp0_on_fire 4y ago
Any organization of that size will have inertia and the damage was already done by the time they got there.
- jaycroft 4y ago
  I think the parent is saying that the new CRO is bad not because they caused the dumpster fire - the new CRO is bad because after interviewing in January, they saw the dumpster fire and either thought it didn't matter, or that they could fix it. Not a case of "incompetent because they couldn't fix the problem", instead a case of "must be incompetent because they saw the books but took the job anyway".

thewarpaint 4y ago

Source: https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/amp/ https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...