The bottom fell out entirely for SVB on Friday, when a planned capital raise reportedly failed.
Just 24 hours after CEO Greg Becker implored VCs to “stay calm” amid withdrawals triggered in part by high-profile funds who advised portfolio companies to pull their money, the lender was in talks to sell itself.
The shares, which plunged 60% on Thursday, staged a dubious encore, collapsing before being halted for news. For all intents and purposes, it’s over. I’m not sure there’s any utility in employing euphemisms at this juncture.
The bank hired advisors and “large financial institutions” were being sounded out for interest, sources told CNBC. Employees were told to work from home. “SVB is undergoing a series of conversations that have not been concluded yet to determine next steps for the company,” a memo read.
The drama began barely 48 hours ago with a strategy update that found the bank offloading its AFS portfolio at a $1.8 billion loss and detailing a $2.25 billion effort to raise capital, mostly through common stock. That plan fell through, apparently.
Thursday’s fireworks triggered one of the largest single-session selloffs in US bank shares on record, and the crisis reverberated globally on Friday, when European banks dropped sharply.
“This ultimately looks like a story of explosive growth in the ‘money printer’ years and badly mis-managed interest rate risk,” Bloomberg’s Cameron Crise said. “If you take in a boat-load of deposits when money is virtually free, and deploy those funds into low-yielding bonds, you’re going to run into trouble when rates rise a lot and some of your depositors want their money back,” he went on, adding that although SVB’s clients “may be fairly unique (what with catering to profit-free, cash-burning startups), there are naturally concerns that interest-rate mismanagement may be a larger feature of the landscape.”
Late Thursday, Bill Ackman suggested the government should bail SVB out. By Friday morning, dire-sounding Op-Eds about the future of startup financing and an existential crisis for “innovation” were making the rounds.
Spreads on SVB’s 2033s ballooned to 1,061bps. Reports indicated its deposit outflows were “outpacing the sale process.”
I’ll be surprised if this remains limited to a tech startup cash flow problem. The recent attractiveness of money market funds relative to demand deposits has the potential to broadly drive the same net result (deposit shrinkage), and that’s basically a function of “too far too fast” policy driving the shift in incentives for how cash is managed. Hence the sell-off in regionals, I suppose, and the predictions that the Fed has found their “thing-that-they-broke”.
Funny, I’d recently been conversing with others how Fidelity had started displaying “Now offering 4.2% !! ” in grocery-store style exploding caption bubbles when you logged in.
If the winddown of a couple regional banks are all it takes to get the Fed to back off its inflation fight, then perhaps markets will see this as bad news that is really good news, or “badlygood”?
John, I like your insights, but I don’t think fetch is going to happen.
Crypto bank, tech bank – don’t worry – this time it’s different.
Mclane: Come to the coast – we’ll have a few laughs.
What happened the last time rates shot up this quickly in the early 80s? Did a bunch of regional banks fail?
The savings and loan crisis of the 1980s and 1990s was the failure of 32% savings and loan associations in the United States from 1986 to 1995.
Maybe, but right now it’s “doubleplusungood,” in Orwellian Newspeak.
I’m baffled at the “stay calm” and “government bailout” options as they seem to be opposite of “homo-rationalis” and game theory. Waiting for someone else to do “the right thing” (looking at you Putin and Trump)… and the moral hazard of rewarding a mismanaged bank.
I get that it has contagion and hurts plenty of innocents (which is why I’m guessing the FDIC intervened rather than leave it to the same incompetent/bad actors) but the firesale of assets was a huge clue they were torching money to “solve” the problem (their own greed of getting a percent or two on eighty billion).
https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/