SIVB Bank Failure

[Gregmal]

 

[CorpRaider]

4 hours ago, Dalal.Holdings said:

 

Seems completely asinine for Feds to continue Wells' asset cap and stymie the FHN acquisition given what's happening.

It does.  Never waste a good crisis.  Might have to wait for some credit deterioration to reveal that they've been prohibited from chasing growth in loans and have been kicking out hot deposits during this bubble.

Edited March 14, 2023 by CorpRaider

[Castanza]

11 hours ago, CorpRaider said:

It does.  Never waste a good crisis.  Might have to wait for some credit deterioration to reveal that they've been prohibited from chasing growth in loans and have been kicking out hot deposits during this bubble.

 

The thing about Wells is you're always waiting for another shoe to drop and leave you holding the bag. I've been in and out of it since 2017. I didn't pick up any when it was in the 20's during Covid. Everyone seemed to think the asset cap was going to be removed then due to market conditions as well....No Bueno  

 

Pretty much put this in the too hard pile along with Citi, CS, DB, for all of eternity. Wells is interesting though; they have some really unique assets (rail cars) but I think it will always underperform until that cap is lifted (if ever). 

[changegonnacome]

 

 

This is the same Jason Calacanis from "All In" fame - that was doing Mad Max tweets over the weekend begging that SVIB be rescued.........that it was the backbone of the US economy!

 

Silicon Valley Bank its clear was a cookie jar with a banking license attached for the VC community.........it seems it stopped operating as a true bank years ago.....it had become a lapdog for its VC/founder clients......its business model was predicated on ever higher and higher tech valuations & 'exits'. 

 

The reason nobody is stepping into buy the bones of SVIB USA - is that the business model was an uber-leveraged play on the tech bubble.....in short SVIB's loan book, I'm guessing, for those that looked it over is an inter-tangled mess of correlated personal and business loans in VC land......in short a prudent bank would think about SVIB for five seconds and know its likely a toxic steaming pile of crap thats unravelling day by day.

Edited March 14, 2023 by changegonnacome

[changegonnacome]

Lots of chatter out there around why Signature Bank was so aggressively shut down when it seems it was still able to meet deposit demands. The story goes that regulators now want crypto exposure expunged & lanced from the US banking system.

 

Why?

Because they are beginning to come to the conclusion that a collapse in the crypto ecosystem (FTX) jumped like a virus into the traditional banking system compounding over time via Silvergate into the SVIB collapse.

 

So the story goes that US regulators........are beginning to trace the SVIB bank run......back first to FTX......which caused a run on Silvergate as crypto bros all demanded their money back ASAP & where Silvergate had asset-liabilty mismatches and collapsed. This effectively began a search for 'Silvergate like' bank balance sheets and SVIB fit the bill.......and well the rest is recent history.............just shows that risks have a strange way of compounding and the 'tiny' crypto market long considered NOT systemic too small to matter can end up mattering alot. In this instance one can argue that the crypto tail started wagging the US financial system dog.

[CorpRaider]

3 hours ago, Castanza said:

 

The thing about Wells is you're always waiting for another shoe to drop and leave you holding the bag. I've been in and out of it since 2017. I didn't pick up any when it was in the 20's during Covid. Everyone seemed to think the asset cap was going to be removed then due to market conditions as well....No Bueno  

 

Pretty much put this in the too hard pile along with Citi, CS, DB, for all of eternity. Wells is interesting though; they have some really unique assets (rail cars) but I think it will always underperform until that cap is lifted (if ever). 

Free upside if the price is right as I see it.  That plus right sizing real estate plus upgrading the online offering (hey a voice assistant is dropping soon...wooo).  Disclosure:  main thing I care about is the deposit base/liabilities/float.  None of the others you cite have that to the best of my knowledge.  I would therefore never buy them.

Edited March 14, 2023 by CorpRaider

[Spekulatius]

I think WFC is just too kneecapped plus their online banking still sucks. I would rather go with regionals like PNC or TFC or USB  (bought a bit of all three today).

 

I just don’t think it has much of a chance to perform very well.

[benchmark]

9 hours ago, Spekulatius said:

I think WFC is just too kneecapped plus their online banking still sucks. I would rather go with regionals like PNC or TFC or USB  (bought a bit of all three today).

 

I just don’t think it has much of a chance to perform very well.

I think WFC needs spend money on lobbying. They need the cap removed -- "look ma, there are all these deposits that we need to take for the stability of the banking system, can you please remove the cap so that we can help?"  

[Mephistopheles]

1 hour ago, benchmark said:

I think WFC needs spend money on lobbying. They need the cap removed -- "look ma, there are all these deposits that we need to take for the stability of the banking system, can you please remove the cap so that we can help?"  

Or - help me to lend all this money due to COVID…

 

it’s insane to me the cap isn’t lifted yet. They’ve suffered enough!

Edited March 15, 2023 by Mephistopheles

[changegonnacome]

12 hours ago, Mephistopheles said:

it’s insane to me the cap isn’t lifted yet. They’ve suffered enough!

Haven’t looked recently is the cap even a problem for them right now?…..like what is it stopping them from doing exactly in this moment in time that they would be otherwise.

[John Hjorth]

33 minutes ago, changegonnacome said:

Haven’t looked recently is the cap even a problem for them right now?…..like what is it stopping them from doing exactly in this moment in time that they would be otherwise.

 

@changegonnacome,

 

It's about the basic activity of a bank : Lending.

[CorpRaider]

1 hour ago, changegonnacome said:

Haven’t looked recently is the cap even a problem for them right now?…..like what is it stopping them from doing exactly in this moment in time that they would be otherwise.

I think they probably have to get a special dispensation from the pope of money when deposits come pouring over the transom (they did for stimmy as I recall).  They have been "running off" deposits for like three years (and probably lowering their expected "deposit beta" as a result).  According to twitter they are giving hot money VCs trying to come over from SIVB kicks to the mid-section before they will accept their funds.  Regulatory capture wins again.

Edited March 15, 2023 by CorpRaider

[changegonnacome]

Dumb question........I know they cant grow the loan book.....that I get deposits turned into loans are assets on b/s........but are deposits (liabilities) collected at 1% and parked at the Fed at 4%.....do they turn into effective assets and are subject to the asset cap calculation then. 

 

I suspect so.....given the need WFC has had to get rid of deposits......if they are raising them at 1%....and cant do anything with them then they are losing money hence why they are turning them away.

 

The answer in the short run then is exemptions to asset accounting for WFC.....obscure enough that Joe Six Pack & E.Warren doesnt get wind the 'asset cap' has lifted

[whatstheofficerproblem]

Just got to know that there was a wokeness angle to this issue, internal programs rewarding the most wokest, it could also be the case that the 15 month vacancy for the CRO was to find the right person who met their Diversity, Equity and Inclusion bracket. How can a bank, whose entire balance sheet is nothing but risk, in an environment as risky as today, leave the most crucial position vacant?

[james22]

2 hours ago, whatstheofficerproblem said:

How can a bank, whose entire balance sheet is nothing but risk, in an environment as risky as today, leave the most crucial position vacant?

 

I'm guessing the previous CRO left because of the risk and didn't want to take the fall. 

 

Nor did any potential candidates once aware of the issue.

[changegonnacome]

 

[Spekulatius]

1 hour ago, james22 said:

 

I'm guessing the previous CRO left because of the risk and didn't want to take the fall. 

 

Nor did any potential candidates once aware of the issue.

That is probably the case, i don’t think it was a diversity issue, the issue was that this was a train wreck by mid 2022. The only thing that could have saved them was a massive Capital raise and that is a decision that management could have done with a CRO or not,  but they decided not too.

[james22]

2 hours ago, Spekulatius said:

That is probably the case, i don’t think it was a diversity issue, the issue was that this was a train wreck by mid 2022.

 

I don't know if that excuses them. If the UK CRO choose being woke over addressing the risk (or wasn't capable), seems a diversity issue.

 

In their defense, I suppose they could have hired a diversity figurehead who wouldn't question the strategy in less than nine months if they wished.

[Spooky]

6 hours ago, whatstheofficerproblem said:

Just got to know that there was a wokeness angle to this issue, internal programs rewarding the most wokest, it could also be the case that the 15 month vacancy for the CRO was to find the right person who met their Diversity, Equity and Inclusion bracket. How can a bank, whose entire balance sheet is nothing but risk, in an environment as risky as today, leave the most crucial position vacant?

 

This seems like a false narrative being pushed to advance a political agenda.

[DooDiligence]

1 hour ago, Spooky said:

 

This seems like a false narrative being pushed to advance a political agenda.

 

The old guard needs to take a nap.

[james22]

1 hour ago, Spooky said:

This seems like a false narrative being pushed to advance a political agenda.

 

The gay/minority/female UK CRO was the most capable person for the job?

 

What are the odds?

 

Pro-diversity initiatives are part of the CRO role?

 

 

I don't believe being woke is to blame for/excuses SVB's strategy. They were simply greedy.

 

But it might explain why the CRO didn't check the strategy (that wasn't really their job).

[Spooky]

But that's my point - what does this random person in the UK subsidiary have to do with the failure of a top 20 US bank? The UK piece is nothing.

 

 

[dwy000]

50 minutes ago, james22 said:

 

The gay/minority/female UK CRO was the most capable person for the job?

 

What are the odds?

 

Pro-diversity initiatives are part of the CRO role?

 

 

I don't believe being woke is to blame for/excuses SVB's strategy. They were simply greedy.

 

But it might explain why the CRO didn't check the strategy (that wasn't really their job).

Being the CRO is a somewhat thankless and useless job. It satisfies regulators but has no real function.  Real risk management happens at the entire exec level.  Jamie Dimon is the best, most effective risk manager at JPM.

 

You want to get fired as a CEO or business head, just underperformed all your peers.  As Chuck Prince said, as long as the music is playing, you have to keep dancing.  The CRO likely raised multiple red flags that would have hurt profitability to deal with so the CEO/Risk Committee would acknowledge it and override them.  I've never ever once heard on a quarterly call "we missed our numbers because our risk managers pulled us back because we were taking too much risk for the payoff"

 

If you're a CRO, you generally raise issues, collect a big paycheck as the sacrificial lamb and hope like hell for the best. 

Edited March 16, 2023 by dwy000

[james22]

52 minutes ago, Spooky said:

But that's my point - what does this random person in the UK subsidiary have to do with the failure of a top 20 US bank? The UK piece is nothing.

 

The number one risk to any subsidiary is the health of it's parent company.

 

You'd expect it's CRO to worry about that.

 

https://news.sky.com/story/bank-of-london-weighs-rescue-bid-for-uk-arm-of-silicon-valley-bank-12830933

[james22]

1 hour ago, dwy000 said:

Real risk management happens at the entire exec level.

 

 

No question. 

 

1 hour ago, dwy000 said:

If you're a CRO, you generally raise issues... 

 

Doesn't sound like the UK CRO did.

 

It may come out that she knew the UK executives knew the risks taken by the parent and were just hoping like hell for the best. So no reason to do her job.

Edited March 16, 2023 by james22