Are "slide" and "slump" accurate terms to describe a ~50% drop in a single day?
Startup lender Silicon Valley Bank to sell stock to cope with cash burn
31–40 of 98 posts
Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#32More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…
Can you send me an email? Email in profile. I have more thoughts on the UST situation
Why not just post them here in the comments?
Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#33More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…
> Banks are required by law to buy US Treasuries (UST). This regulation came about after the GFC. Can you expand on this? What is this regulation titled?
Banks are required to have reserves. Reserves are mostly held as US Treasuries.
Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#34SVB is inderwater not only because of tech decline, but mostly because they bought huge amount of agency MBS at the generational high prices (during low rates), thus tying lot of capital for a very long time. If they were to sell those MBS today to get cash, bank’s equity would be wiped out Source: https://twitter.com/ragingventures/status/161582608803847373...
Very interesting link. I found this [1] pretty interesting:
> $SIVB's HTM securities had mark-to-market losses as of Q3 of $15.9 b...compared to just $11.5 b of tangible common equity!!
> Luckily, regulators do not force $SIVB to mark HTM securities to market. But the bank would be functionally underwater if it were liquidated today. 5/10
[1] https://twitter.com/RagingVentures/status/161582609427121766...
Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#35More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…
This means that anyone who has a lot of deposits at a US bank can potentially: * Withdraw all their holdings, forcing the bank to realise losses in their holdings * Buy shorts in the stock of the bank * When the losses are announced, make lots of money from their short position.
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Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#36Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#37More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…
This means that anyone who has a lot of deposits at a US bank can potentially: * Withdraw all their holdings, forcing the bank to realise losses in their holdings * Buy shorts in the stock of the bank * When the losses are announced, make lots of money from their short position.
When someone holds as much cash deposits in a bank to single handily cause that, that party doesn't need that level of petty market manipulation to make a profit so.
Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#38More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…
This means that anyone who has a lot of deposits at a US bank can potentially: * Withdraw all their holdings, forcing the bank to realise losses in their holdings * Buy shorts in the stock of the bank * When the losses are announced, make lots of money from their short position.
Step 4: receive your complementary court summons for market manipulation.
As a more practical matter, you would need a very large sum to do this for even mid-sized banks. SV bank alone had over 200 billion in assets, so you would need at least ~10 in cash to make a significant dent in that. If you have that much cash in any bank, there are probably many options you could go for that promise bigger profits at less risk.
Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#39Do other US financial institutions have the same exposures, or is this a one-off situation based on SVB's closeness to the US tech sector?
SVB does a lot of venture debt. When venture debt is not repaid, SVB ends up owning the company, and can recover its exposure only if there is a buyer for the company or assets. In early stage land where valuations are the result of a fairly small consensus, it is plausible that SVB would have over-extended.
Stupid question, but should the investment arm of a bank be separated from the banking arm?
Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn
#40More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…
> UST prices fall as interest rates rise
Just to underscore the point here, in the past year, the fed has raised rates a ton, and counterintuitively, AGG, an ETF tracking a bond index fund heavily weighted towards US gov debt (by necessity) is down 15 percent over the past 2 years[1].
You might naively assume a bond fund values would reflect interest rates but there is a lag as you wait to roll over old bonds into new debt at the new high interest rate, and until that happens you don't collect any of the extra interest. Even if you sold the old bonds to buy new good ones, nobody will buy them without a discount to make up for the low interest rate.
This is why you have the weird mark to market rules. A US bond _will_ mature at 100 dollars, but can rationally sell on the market below 100 dollars.