pulse Report This Comment Date: March 14, 2023 05:32AM
As head of risk in UK I'm sure she contributed directly to the failure of the
US bank
They were indeed without a risk officer, after Laura Izurieta left in April last
year and wasn't replaced until January. It wasn't because this woman was
promoting lesbian porn.
Probably also had nothing to do with SVB's constant bets that interest rates
would fall until those bets all failed to pay off.. especially as they increased
financial assets 300% over the previous 2 years and had to cover the losses on
those.
woberto Report This Comment Date: March 14, 2023 06:02AM
The UK, Denmark & Sweden are "representative offices" and you
can’t generate sales from a representative office (you can only run
non-transactional operations).
So yeah they have no impact on the US bank. According to TechCrunch+.
Get woke go broke is a wholistic approach to destroying a company.
If you are spending time and money on that shit then you are not fit to handle
other peoples money.
pulse Report This Comment Date: March 14, 2023 12:21PM
This is one of the best writeups I've seen on the situation (in simple
terms)
-----------------------------------------
Silicon Valley Bank (SV
was thriving. Credit losses are fairly low. Its
deposits TRIPLED from 2019 to ‘21.
How’s that a problem? It sounds great, right?
1. When banks accept deposits from clients, they OWE the client that money. So
deposits are liabilities to the bank. Liabilities cost money……”cost”
both to serve those clients (branches, tellers etc ) and any interest the bank
pays you on your checking account (deposit).
2. To pay for the cost of those liabs, banks turn them into assets: lending
deposits as small business loans, mortgages, etc.
If a bank can’t lend deposits responsibly, it often uses excess to BUY loans
or “securities,” like US Treasuries & Mortgage Backed Securities
(MBS)
3. As mentioned above, from 2019-2021, the deposits tripled! SVB needed to take
those funds & acquire “assets” to pay its costs.
4. Much of the $ was from VC-backed companies that needed a place to deposit the
$ they raised. Those are big deposits.
5. Deposits were pouring in too fast to lend responsibly. SVB recognized that.
Rather than make dumb loans, SVB bought assets guaranteed by the US government -
Treasuries and MBS. BUT, it bought long duration. Often 10+ year bonds.
Mistake!
6. When rates rise, fixed income prices fall.
A general rule of thumb is for every one year of “duration,” each 1%
interest rate move impacts the price of the bond by:
1% x Duration
A 1% move on a 9 yr duration bond is ~9% +/- on the bond price.
But banks are levered…
7. Remember: banks generally acquire assets by using deposits (liabilities) as
the capital source.
And banks like SVB are levered 10:1 or more: owing $10+ for every $1 of
shareholder equity.
If you’re levered 10x, a 10% loss on assets is a 100% wipeout.
8. So SVB bought high quality assets, but it bought tons of them with LONG
duration at LOW interest rates.
When the Fed raised rates, those assets declined in value…
…1% x Duration.
Those losses, multiplied through the leverage at SVB, caused a big problem!
9. SVB now has a mark-to-market hole in its balance sheet. It’s “just”
mark-to-market: as long as its liabilities are sticky (ie, depositors leave
their money SV
, it will ultimately be fine.
But that’s a big “if.”
10. Technically, if all the depositors ask for their $ back at once, SVB needs
to sell those bonds at the mark-to-market value, crystallizing what could have
been a temporary loss. And if those losses are big enough, it may not have
enough money to pay out all depositors.
11. But that situation rarely happens. However, once it starts, game theory
kicks in: NOBODY wants to be the last depositor at a bank.
12. Which brings us to today. SVB has large depositors. Large depositors
aren’t fully insured by the FDIC - they have an incentive to find HIGHLY sound
banks. Once a whiff of issue pops up, large depositors run…“bank run.”
13. As a bank’s deposits go in reverse, it has to sell assets. The FHLB steps
in to help turn its less liquid assets into more liquid.
pulse Report This Comment Date: March 15, 2023 02:42AM
I think it's only fair that everybody covers my losses, too
