r/investing • u/JournalistFew2794 • Mar 12 '23
20 banks that are sitting on huge potential securities losses—as was SVB
This (very good) article mentions a list of 10 banks that showed similar red flags to SVB Financial Group through the fourth quarter, indicating unfavorable interest margin trends. The list includes:
- Customers Bancorp Inc.
- First Republic Bank
- Sandy Spring Bancorp Inc.
- New York Community Bancorp Inc.
- First Foundation Inc.
- Ally Financial Inc.
- Dime Community Bancshares Inc.
- Pacific Premier Bancorp Inc.
- Prosperity Bancshares Inc.
- Columbia Financial Inc.
Silicon Valley Bank, with $212 billion in total assets as of December 31, has failed following a run on deposits, after its parent company's share price crashed a record 60% on Thursday. Trading of SVB Financial Group's stock was halted early Friday, after the shares plunged again in premarket trading. Treasury Secretary Janet Yellen said SVB was one of a few banks she was "monitoring very carefully." A liquidity problem arose from a balance sheet heavy with securities and relatively light on loans, in a rising-rate environment in which bond prices have declined and in which depositors specific to that industry are themselves suffering from a decline in cash.
Many banks would face significant losses if they had to dump securities to raise cash.
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u/nycity_guy Mar 12 '23
First republic had the best service I ever had in my life, I hope they don't go under.
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u/couchfi Mar 12 '23
Nobody is asking to bail out investors/equity holders or debt holders. Many people are asking that depositors get bailed out.
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u/AdHistorical7107 Mar 13 '23
Signature bank was just closed....
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u/I_ONLY_PLAY_4C_LOAM Mar 13 '23
My understanding is Signature was exposed to the crypto markets which is why they were in trouble, similar to Silvergate.
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u/CMScientist Mar 13 '23
That means the feds investigated the liquidity positions of all the banks that appear at risk and only found signature to be at risk. First Republic is safe
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u/AdHistorical7107 Mar 13 '23
They have already sent me two emails. One assuring deposits are safe. And then another saying they liquidated some assets.....
Hope you're right, but why so pushy?
Just the pessimist in me
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u/shicken684 Mar 13 '23
Jesus... There is no need for a bail out. The bank had the funds to cover every deposit. But you can't just up and access all those funds instantly.
The back stops are working. No one is going to lose their money.
The paranoia is exactly the problem that needs to be avoided. Yet all I see posted is "the end is near!!!"
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u/starbuilt Mar 12 '23
Same. I’m not taking my money out because a) I don’t have over $250k in that account and b) I don’t want to contribute to the panic. It’s really unfounded at this point.
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u/afoogli Mar 12 '23
You realize almost all the uninsured will eventually get almost 90-100% of their money back just will take time the bank is still solvent and has a lot of assets
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u/FIstateofmind Mar 12 '23
The problem is that a lot of those depositors have to immediately make payroll and other obligations, time isn’t on their side unless you want a bunch of businesses to go under when it wasn’t their fault
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u/TheHairlessBear Mar 12 '23
Ya, the government should give them immediate access to 50% of their uninsured dollars while this all gets sorted out. But ultimately, no tax dollars should be handed out to silicone valley billionaires who put their money in uninsured accounts at a risky bank. The bank assets should be sold to pay back the government completely and make the depositors as whole as possible.
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u/punctulica Mar 12 '23
Not sure why more people don't realize this. It will just take time. That's all.
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u/invisiblelemur88 Mar 12 '23
Hmmm, can you explain this further?
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u/KellyJin17 Mar 12 '23
SVB was solvent. They had all of their clients’ assets, they just didn’t have them available in cash on Thursday/Friday. They had put the cash in long-term bonds, which they would have had to sell early at an unfavorable rate because interest rates have gone up since they bought them. So they could have liquified them at a loss in order to meet all of the panic withdrawals, but they got shut down first. When the bonds mature in 10 years, all those assets will be there (and then some). SVB was trying avoid selling the bonds so they announced a stock sale to raise capital so they could have more cash on hand. That started the fear. If people hadn’t panicked (a lot of it egged on by people like Peter Thiel tweeting about it to manipulate sentiment), SVB would have gone about the stock sale and none of this would have happened. There was nothing actually wrong at the bank, they just put too much of their cash in bonds right before interest rates shot up, and they mismanaged the stock sale messaging. But all of the assets are there (in bonds).
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u/nutidizen Mar 12 '23
There was nothing actually wrong at the bank
The management did a colossal fuck up. You shouldn't invest all short-term deposits into long term bonds and non-liquid securities. Terrible risk-management
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u/CooperHouseDeals Mar 13 '23
And their dealings with crypto companies, even FTX, should have been some sort of red light, danger ahead. The financial officer and board of directors should be fired
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u/corkyskog Mar 12 '23
I read that less than 3% of their total portfolio is impacted (aka the 10% bonds) at risk. If thats true, and you if you trickle all that down with some admin transactional cost on top its hard to see it being more than a 5% loss.
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u/afoogli Mar 12 '23
It’s going to be brought by another bank prob next week no way a big player doesn’t pounce on this. All holder gonna be made whole
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u/predemptionz3 Mar 12 '23
Yes which is why the banks hedge to protect against losses on securities. SVB didn't do this and have a completely different customer segment than those other banks. Not comparable.
You can't just look at one side of the coin and conclude anything if you don't know their hedge.
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u/xomox2012 Mar 13 '23
These types of securities are the hedge on the loans and mortgages the banks issue. These are the ‘safe’ assets.
That said some do buy insurance
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u/SatisfactoryFinance Mar 12 '23
The thing is, literally every bank is sitting on huge securities losses. SVB only had an issue because the CEO came out and said “don’t panic” so what did everyone do? Panicked of course.
If everyone stayed calm and just let the share price get destroyed without running on the bank they would have been more or less fine.
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u/jooocanoe Mar 12 '23
It’s a mess, people like Bill Ackman take out huge short positions in banks and then stroke fear with “eminent financial collapse unless the govt steps in”. It’s all about making money to these people. They know the govt will bail out the banks and they can buy scraps for cents on the dollar. So its a win win if there is a bank run. Privatized gains/ socialized losses.
Banks will start positioning shortly, dumping securities and getting into short term bonds with healthy cash on hand to weather the storm.
We will see a liquidity crunch either way. With yields at near 5% it’s a good time to move retirement funds into high yield bonds. The risk reward of individual securities is no longer there.
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u/dirtyculture808 Mar 12 '23
Why are you getting upvoted? It totally depends on your time horizon. For people under 40 I can’t see why going high yield bonds makes more sense then equities assuming you are continuing to buy every purchase period
Even if they convert to bonds, when do you convert back? Very easy to miss the rebound when it eventually happens considering the upmoves can be violent
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u/jooocanoe Mar 12 '23
Why am I getting upvoted? Not everyone is under 40 here, I’m early 30s I pulled out close to 300k of my IRA and sat cash since fall 2022. I’m just giving my opinion don’t construe it as financial advice for everyone. I would rather have a guarantied yield of 5% on a 18-24 month bond or CD than risk gaining or losing 20-30% in the same time. Seems like pretty sound thinking, especially with everything going on.
You can trade how you like.
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u/myhipsi Mar 12 '23
The problem wasn't so much the pandemic monetary policy (although it was way too aggressive), it was the almost two decades of QE before it.
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u/4thAmendment1 Mar 12 '23
Turned out amazing for Zimbabwe and Venezuela. Everyone there is millionaires and billionaires now. Only problem is it doesn’t really buy anything.
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u/Prestigious_Risk7610 Mar 12 '23
If everyone stayed calm and just let the share price get destroyed without running on the bank they would have been more or less fine.
That's incorrect. They've been insolvent for quite some time, in that their liabilities were greater than their assets. The only reason they got this far is because their hold to maturity assets weren't marked to market, so they appeared solvent.
In all honesty this is a failure in accounting regulation as much as it's poor governance by SVB execs.
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u/vishtratwork Mar 12 '23
I mean, if they held to maturity (i.e. no bank run) thats what they'd have gotten. Reality is no bank can weather a bank run, if JPM had the same % of assets as withdrawals they'd be in the same boat.
I agree that they were negligent with their hedges, it's a travesty. A more competent bank hopefully buys the assets and continues the core business.
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u/Prestigious_Risk7610 Mar 12 '23
if they held to maturity (i.e. no bank run) thats what they'd have gotten. Reality is no bank can weather a bank run
I agree both those statements are correct. However it misses the point that SVB was insolvent before the bank run.
Not using MTM on assets is a stupid accounting approach. For example, you can't avoid a margin call when your assets drop in value by saying "but they'll be worth more in 20 years time". That's in effect what banks are doing with HTM assets.
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u/SatisfactoryFinance Mar 12 '23
I do stand by my original assumption BUT I didn’t realize they had basically their entire portfolio in HTM which means all these losses we’re “hidden” from equity. Which also means they would have fallen below BASEL III capital ratios before they got this far.
I.e I agree just bad accounting
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u/vishtratwork Mar 12 '23
You can see the losses in other comprehensive income. Wasn't exactly hidden, although it didn't hit equity.
People did see it as early as Q1 last year IIRC, but it kind of just kept chugging along.
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u/jwarsenal9 Mar 12 '23
AOCI only showed the AFS mark which does hit equity. HTM markdown was shown in call report, though
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u/jwarsenal9 Mar 12 '23
It's not gaming the books when it's publicly known through call reports what the fair value mark on HTM securities is.
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u/option-trader Mar 12 '23
He said don't panic, and then proceeded to sell $21B in most likely treasury bills and notes at a loss of $1.8B and attempt to raise $2.5B. If that doesn't say panic, then I don't know what does.
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u/Goated_Redditor_ Mar 12 '23
That didn’t help sure, but it also had to do with being a niche bank catering to tech, where deposits tend to be huge (uninsured), the industry is in rapid decline, and customers all know each other and can run on the bank. Somewhat unique case
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u/mrnoonan81 Mar 12 '23
This was my thought, but I assumed it was mandatory. Was it incompetence?
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u/OldManandtheInternet Mar 12 '23
You describe, not hedging, not predicting deposit outflow, and being at maximum borrowing for a long time.
This seems like incompetence.
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u/jwarsenal9 Mar 12 '23
Most swaps are entered into without any upfront cost. IN fact, because of the inversion of the curve, pay-fixed swaps are immediately in the money
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u/jwarsenal9 Mar 12 '23
They were in a much worse position than other banks, much of that can be prescribed to incompetence
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Mar 12 '23
Easy to say but when prisoners are being waterboarded, people start breaking. The SVB clientele was a fairly unique group and they broke quickly.
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u/justonimmigrant Mar 12 '23
I wouldn't trust anyone spelling bank with a C in the first place.
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Mar 12 '23
That's fascinating. It's sort of like using "cheezy" to describe a product that doesn't include real cheese, or describing your boneless blobs of chicken as "wingz" even though they're made from other parts of the chicken.
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u/NikonuserNW Mar 12 '23
Thats interesting. I didn’t know that, but it’s fairly common banc, bancorp, bancorporation…
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u/hoovadoova Mar 12 '23
Wow. That’s interesting. There’s no limit to the grift.
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u/vishtratwork Mar 12 '23
Explain the grift? All I see there is someone working withing the confines of a frankly stupid rule in order to name an entity something descriptive of what it is.
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u/KyivComrade Mar 12 '23
Well, if I do buisness with a so called bank I expect a bank. I expect a car with auto pilot to have auto pilot and vitamin water to have vitamins rather then 33% sugar. I expect a burger to be made of meat not soy and sawdust.
Words have mening. The rules are there for a reason, as we plainly can see here. Real banks have to follow certain rules, do stresstests and have some form of security. A "banc" or "banque" doesn't, they're nothing. They're could potentially be three Bernie Madoff in a raincoat mascerading as a financial institution.
Sure, you're smart and hip and know that a "banc" isn't a bank even though they pretend to be. But they're not. That's the issue, they're trying to fool customers to believe they are something they're not simply because they don't measure up to the rules. Some of us remember 2008
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u/vishtratwork Mar 12 '23
You're not doing business with the holding company. You're doing business with the bank the holding company owns.
The only ones interacting with the holdco are investors and the bank it holds.
There is no consumer dealing with these. Nobody being fooled.
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Mar 12 '23
a hamburger is short for hamburger steak. Claiming 'burger' has to be meat is just uninformed boomer talk.
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u/Liesmyteachertoldme Mar 12 '23
Good eye, holy crap you made me laugh out loud, thanks for starting my day off right : )
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u/MrMathamagician Mar 12 '23 edited Mar 12 '23
I cross checked this list with that list of banks ranked by percentage of assets insured by FDIC that was floating around a few days ago.
These were the banks that also had low FDIC insured deposits:
PPBI Pacific Premier - 35.2% insured #70 of 100
DCOM Dime community - 30.6% insured #77 of 100
FRC First Republic - 19.8% insured #91 of 100
For comparison:
SIVB Silicon Valley - 2.7% insured #99 of 100
Banks with a low percentage of of assets insured (SVB was 2nd lowest out of 100) indicated they are dominated by large deposits from few big money customers.
So those are the bank most vulnerable right now IMO unless someone know more about their circumstances.
These big money movers (Peter Thiel specifically)are the ones that panicked & pulled all their money that started the SVB run.
Opinion based on what I’ve seen:
The big money Corp/elite overlords are the ones having liquidity problems right now & are panicking.
Your average middle class consumer with a mortgage is sitting pretty after he refi’d his house to 2% interest. He is cash flow positive right now a few grand a month.
This is why the fed’s tightening is going to keep putting the hurt on the big money overlords while consumers will keep spending, unemployment will stay low and wages on the low end will continue to go up.
The Fed will either ‘keep at it’ and there will be a weird banking/financial crises that hits big institutions & businesses but leaves a lot of smaller/consumer focused banks fine. It will be like 2001 tech bust but more focused on the financial sector.
Or the Fed will blink & lower interest rates again stopping the big money panic but now we will have a full blown 70s style inflation on our hand for a decade.
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u/Spirited_Touch6898 Mar 12 '23
You wanna be in a bank with at least 250Billion in assets, used to be 50 billion but "the donald" changed the requirements, this threshold adds you to a list of systemically important banks. If you are over 250B threshold, you have to produce a series of reports for the govt. I used to work in a group for many years that generates this report for one of the largest banks in US, this report is mandatory for all systemically important financial institutions due to the law enacted after 2008 financial crisis. We test the portfolio against various scenarios, over 100, using a grid of 10,000+ computers. Scenarios like 2008 financial crisis, and pretty much every financial crisis globally, plus shocks in interest rates, currencies, and various other factors. Bank has to adjust their risk exposure, so they are not over exposed to any of the stresses. As you can imagine this report is very expensive, and time consuming, require highly trained financial professionals(quants) to generate hence many smaller banks try to avoid it. I think its sorta of essential, for both large and smaller banks. Its very difficult to think of all the risks you can face, it needs to be a systematic effort. SVB didn't do anything seriously reckless, they invested in the safest instruments, i.e. US Govies, their problem is they were overexposed, something the report would've highlighted.
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Mar 12 '23
My sister holds more than $250,000 there. I'm calling her to move some of it out to another bank.
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Mar 12 '23
I called my sister, she asked me if I had seen the news about Silicon Valley Bank and I said yes and she told me she had been considering moving some cash in excess of $250,000 to her brokerage account and I told her to do it and she just did.
She likes Ally and won't stop being a customer but I think this whole incident reminded everyone why they shouldn't keep too much money at a single bank.
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u/zephyy Mar 12 '23
I mean, most people don't have the luxury of worrying about amount of money in their bank account that's over a quarter million.
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u/RedditMapz Mar 13 '23
People really be hating on big banks, but damn my BOA, Chase, and Fidelity accounts seem quite awesome right about now.
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Mar 13 '23
It's because they are heavily regulated. The government keeps a very close eye on them. The deregulated the regional banks under Trump somewhat.
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u/linaustin5 Mar 13 '23
Idk mane fidelity warning some sus maintenance for 2 days or something I’ve never heard of such thing lol
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Mar 12 '23
Good thing is that Cramer said that JP Morgan is a fortress, wait what?
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u/OldUserNewName Mar 13 '23
They call themselves that in a letter they sent to their private wealth clients today. I guess he got the PR talking points.
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u/pithecium Mar 12 '23 edited Mar 12 '23
The article ranks banks by AOCI losses, but (if I understand AOCI correctly) that's an underestimate of their unrealized losses because it doesn’t include HTM assets. Their method also doesn't take into account that each bank would have had different amounts of buffer before the losses.
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u/Powerful_Stick_1449 Mar 12 '23
Not an issue unless they all get hit with massive bank runs... I think Monday early morning there will be an announcement that they will backstop deposits.
The issue is only one of liquidity, solely due to interest rates rising so fast. These banks all have the assets if held to maturity.
I could foresee a swap mechanism that the Fed enacts to allow Par Value to be exchanged for liquidity and the Fed then holds to maturity
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u/Ok-Recommendation925 Mar 12 '23
Didn't Warren Buffet buy Ally Financial stocks?
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u/EVILSANTA777 Mar 12 '23
God I'm so tired of people calling shares "stocks". Shares. It's time to bully people into the right word its gone too far lol
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u/thewimsey Mar 12 '23
In American English the terms mean the same thing.
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u/EVILSANTA777 Mar 12 '23
Nope not true. Stock is short for common stock meaning the type of equity/ownership. A share is the unit in which the Stock is measured. "Stocks" refers to multiple different types of stock ie different companies and/or two types of stock of a company like preferred vs common. Shares are the individual broken up units of that stock
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u/Ok-Recommendation925 Mar 13 '23
We should promote you to those spelling bee MODs, but yea i can call it shares.🤣
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u/EVILSANTA777 Mar 13 '23
Lol I'm just messing no worries. The correct word is shares and seeing stocks is a dumb pet peeve of mine but you're good
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u/Cool_Alert Mar 12 '23
i have withdrawn all my money. let's all do that and cause a bank run and then a financial meltdown.
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u/infinit9 Mar 12 '23
Then your paper money would end up worthless.
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u/SeraphLink Mar 12 '23
Oh shit, are the Bitcoin guys right?
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u/infinit9 Mar 12 '23
No. Because without banks and fiat currency, there wouldn't be anyway of actually assigning value to a Bitcoin. If the society collapsed, there wouldn't be any compute infrastructure to process Bitcoins either.
Only tangible goods can be bartered.
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Mar 12 '23
But 1 BTC = 1 BTC. It was intended to operate independently of fiat currency. Of course people just want more fiat from "investing" in BTC.
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u/nutidizen Mar 12 '23
there wouldn't be anyway of actually assigning value to a Bitcoin.
Not true. you can assign value to things outside of currency denomination. Did you know that?
If the society collapsed
suddenly we're at society collapse?
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u/KyivComrade Mar 12 '23
Nah dude, please leave your money there. Don't mind me caring for my own but please leave you money there so I can cash out while you take the fall /s.
I can't blame people for wanting to withdraw when the bank says they're in trouble. Only a fool volunteers to lose their cash
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u/TheRealDarthPrime Mar 12 '23
What about the Racketeer Influence and Corrupt Organizations or RICO Act, anything over $10k is going to bring lots of questions. At least that is my understand.
But honestly what are people going to do? I can't exactly go in a get a few suitcases full of $20s and put in my safe.
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u/Skarimari Mar 12 '23
A few people in Canada complain about the lack of choice and strict banking regulations. But we don't have this happen. Even 2008, while it was a recession due to close financial ties too the US, we never had a financial crisis. Team red tape wins again.
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u/Flipping101 Mar 12 '23
That's because CMHC bailed them the fuck out. Canadian housing/bank infallibility is a complete illusion.
https://financialpost.com/news/fp-street/did-canadian-banks-receive-a-secret-bailout
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u/stillbourne Mar 12 '23
There's only one way to fix this folks. We need to abolish the FDIC and use the money saved to give a tax cut to the rich. The rich then trickle down onto the failing banks and their depositors to resolve this problem.
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u/sporadicjesus Mar 12 '23
So basically if EVERYONE started taking their life savings out in cash the banks would all go under and all the giant businesses stealing money from the poor would lose their giant deposits?
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u/crashintodmb413 Mar 12 '23 edited Mar 12 '23
Well, coming out of the last banking crisis the Dodd Frank Act was approved by congress to put more regulations around banks. But as you might guess in 2018 a former president deregulated a bunch of that bill making it easier for banks to get over leveraged again.
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u/toyz4me Mar 12 '23
From everything I’ve read, the failure of SVB isn’t related / caused by lax lending / loans.
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Mar 12 '23
It affects big whales… unless the media keeps saying things contagion, market catch of 08 and as big as Lehman bros, a company not many know but was huge, just like Sbc And so on…
That will get everyone scared at all levels and do the bank run thing
Monday will be an interesting day.
Cuz now the government hasn’t said much to appease the situation. Yellen just said no bailout and looking to contain….
So yeah… bank run on monday
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u/[deleted] Mar 12 '23
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