Thursday, March 9, 2023 to today
SVB Overview
209bn assets
175bn deposits
13-14bn market cap
16th largest bank
Financial Profile
Heavily reliant on tech / VC companies - <10% deposits from stickier US domestic retail
90% deposits uninsured – very different form other banks (in a bad way)
Low loan to deposit ratio – small lending book. Aka larger securities portfolio
Large HTM investment portfolio, especially in higher yielding long duration USTs and MBS over Fed reserves and t bills
Huge interest rate risk exposure
50%+ assets invested in fixed rate securities
Average maturity of HTM bond portfolio was 6+ years
Mark to market losses
End of 2022: SVB had 15bn+ mark-to-market losses
What happened
2021 deposits doubled – concentrated in longer dated USTs
Bank moved too slowly to shore up capital base, vulnerable to rapid deposit outflows
ALM policy errors, mark to market losses exceeded equity base
Usually higher interest rates drive stronger earnings b/c loan rates rise faster than deposits
SVB had the opposite happen due to customer base
Why didn’t SVB manage the assets better, or raise capital sooner?
Failed capital raise --> 42 billion deposit run on March 9
Entered FDIC receivership on March 10
What the government did
Yellen made FDIC make all depositors whole
Bank Term Funding Program provides banks up to 12 months financing with qualifying assets used as collateral valued at par rather than mark to market
Prisoner’s dilemma
A lot of SV investors banded together to ask companies to continue with SVB and support the bank
Peter Thiel was the first to run away
Classic prisoner’s dilemma – once one starts, the rest will follow. How to get everyone to agree to stay with SVB? Impossible given human nature
What I am tracking now
J Powell is supposed to hike rates again next week (week of 3/20/2023)
Which companies will benefit from this
Mercury deposits sky rocketed already and offered 3mm FDIC insured
Angellist launched custodial accounts to help startups
Who will serve the large crypto institutions now that both Signature and Silvergate are dead
What will happen to startups now and the venture landscape
Survival mode
Companies who were valuation sensitive will not be
Just get money to last 2 years
Funders need to always have follow on capital reserved and strong capital providers around the table
Silvergate Capital profile
11+bn assets
6+bn deposits
Market cap ~550mm
Founded in 1988, pivoted to digital assets in 2013
Large concentration in crypto – super risky
12 bn --> 4bn deposit run in Q4, post FTX
Forced sale of security at huge losses
Voluntary wind down and liquidation March 8