One year anniversary of Silicon Valley Bank’s bankruptcy

[Mick1]

I read a 260-page analysis of SVB’s immolation by several NYU professors. I’ll spare you the details, because this three-minute video of Senator Kennedy grilling former SVB CEO Greg Becker captures it all:

“You’re the CEO and you had 55% of your assets on (long-term) government bonds and you weren’t hedged?” asked the senator. He then draws a line between the cost of the hedges, the potential reduction in profits and how it impacted Becker’s compensation.

“Mr. Becker, you made a really stupid bet that went bad, didn’t you? And the American taxpayers had to pick up the tab for your stupidity, didn’t they”

Make sure you watch to the end.

And Senator Tester, also not impressed:

 

• This topic was modified 2 years, 1 month ago by Mick1.

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[Mick1]

And when SVB had to borrow $30 billion in emergency financial assistance, they were able to wind it down (or rather, their purchasing entity) was able to wind it down prematurely. So SVB’s price tag, in the form of a large penalty, for that financing was $285 million in fees. Largest of its kind for any bank failure.

After Silicon Valley Bank’s failure, its attempted rescuer charged $285 million in fees

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[Mick1]

Interesting article:

A year after imploding, Silicon Valley Bank tries to make a comeback

https://www.msn.com/en-us/money/companies/a-year-after-imploding-silicon-valley-bank-tries-to-make-a-comeback/ar-BB1jUSvT

Five most interesting comments:

1. SVB spent 40 years building up its business in Silicon Valley. It fell apart in a day.
2. “It was like the banking equivalent of the U.S. withdrawal from Afghanistan,” Hébert said. “It was absolute sheer terror.”
3. “I pulled every dollar out in the first week of their comeback,” said Biju Ashokan, the CEO of Radius, a tech platform for real estate investors. He now banks elsewhere and doesn’t plan to return to SVB.
4. Before the bank run, SVB had about $119 billion in customer deposits, according to the Federal Deposit Insurance Corp. At the end of 2023 that amount was just $38.5 billion.
5. About 81 percent of customers from before the bank failure still have accounts at SVB.

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[Mick1]

The second anniversary of Greg Becker’s debacle, a/k/a Silicon Valley Bank bankruptcy is upon us. I thought I would commemorate it with a few interesting items.

Item #1:

A few weeks back, the FDIC sued 17 former executives and directors of Silicon Valley Bank alleging gross negligence and breaches of fiduciary duty. They claimed that the defendants ignored basic fundamentals of banking prudence and the bank’s risk policies, taking on excessive risk for short-term gains.

They cited failure to hedge interest rate-sensitive, long-term government bonds and related mortgage backed securities, along with a “grossly imprudent” $294 milllion dividend to its parent that drained needed capital less than three months before the bank collapsed.

Named defendants include Gregory Becker, Daniel Beck, Marc Cadieux, Laura Izurieta, Michael Kruse, Michael Descheneaux, Eric Benhamou, Roger Dunbar, Joel Friedman, Mary Miller, Kate Mitchell, Beverly Matthews, Garen Staglin, Elizabeth Burr, Richard Daniels, Alison Davis and Jeffrey Maggioncalda. The executives had lobbied hard to water down oversight requirements.

Lawyers for former Chief Risk Officer Laura Isurieta said that it was outrageous that she was named in the suit because she had repeatedly warned against imprudent investments for (literally) years. But, of course, she had to be named, though she stepped down in April 2022, long before the collapse.

 

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[Mick1]

Item #2:

I’m fascinated by SVB’s collapse, it just seemed so counterintuitive that a bank dedicated to the wealthiest tech and innovation in humankind’s history would collapse. I’ve known every SVB CEO since meeting their original CEO, Roger Smith, as a senior Finance major in college. I liked and trusted all of them, except Greg Becker.

Here’s Becker’s Wikipedia page. He’s so shady that (a) his birthdate is a moving target and (b) it appears he claimed an MBA early in his career that he did not earn (but opened up opportunities for him) and (c), as he stated in his Senate testimony, right after the bank collapsed, Becker flew first class to his Hawai’i home to leave the remaining executives to deal with the failure.

And I’ll throw in a personal item: they had an extraordinary, intelligent chief of marketing strategy (Harvard/Dartmouth undergrad and MBA). They replaced her with a comely Cal Poly-CLO grad who had no grad degree nor banking experience. Greg Becker sure liked her though, and fired their other head of strategy.

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[Mick1]

Item #3:

This is a 25-minute video on the collapse of Silicon Valley Bank presented from a basic angle. If you’re at all sophisticated in financial matters, it’s not for you. If you’re a comparative novice, it’s an excellent video.

I did pick up a few interesting nuggets:

1. SVB had $182 billion in assets, but only $74 billion in performing loans. It had invested $108 billion in cash or long-term financial instruments that paid essentially nothing which was <u>the highest average of any U. S. Bank</u>.
2. 97% of their mortgage-backed securities (remember those from 15 years ago?) were 10+ years in duration with a weighted average yield of 1.56%.
3. The majority of those assets were on the balance sheet as hide hold to maturity, meaning they weren’t accounted for at market value.
4. 89% of SVB’s deposits exceeded the FDIC’s insurance threshold.
5. They did that because…
6. The Fed had signalled that there would be no inflation for the foreseeable future, and then…
7. The Fed raised interest rates higher and faster than they had for two generations.
8. VC and client behavior played a significant role (though this was not unexpected):
   1. VC investment declined as rates increased.
   2. Less funding means startups burned cash at 2x pre-2021 levels
9. “Big Four” bank net unrealized losses skyrocketed (chart at 16:45 mark)
10. Check out the “loan to deposit” ratio chart at the 19:19 mark. SVB is basically off the scale (in a very unhealthy way).
11. Bears repeating: SVB, unlike other banks, did not have customer diversity, nor did they diversify their assets.

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