I have been reading on SVB to figure out what happened and why?
It's important to me for two reasons:
1) I'm an investor (not in SIVB). Always be learning!
2) I'm a customer (of SVB), which directly impacts us (not critical).
Let's dive in!
Interest Rates (Part I)
SVB had a bunch of bonds. Those bonds' values declined as the interest rate went up. That's just what bonds do. SVB could have held the bonds and gotten paid the coupon value at maturity.
But instead, SVB sold tons of bonds at a loss! WHY?
Interest Rates (Part II)
You need to know that lots of the banks' customers started moving their cash to interest-bearing accounts, which means higher costs for SVB. According to SVB, each % point decrease in non-interest-bearing deposits would reduce its net interest income by $3M.
Didn't SVB have cash on the balance sheet?
Interest Rates (Part III)
Context: banks hold their securities in two buckets: Available to Sales (AFS) and Hold to Maturity (HTM).
With HTM, if the value of your securities goes down, you don't take any loss on the balance sheet. It's held to maturity.
With AFS, you take the loss on the balance sheet if the value goes down.
As the interest rate increased, the value of those lovely "secure" assets SVB held dropped rapidly.
Technically, any bank can be insolvent, but the balance sheet doesn't show.
Now, we hit the real story!
My educated guess: SVB realized that with the deposits not coming as fast, VCs not investing, everyone wanting interest & their assets losing value by the minute, they may be insolvent.
What to do:
Market Phycology & Mechanics
The madness began, and market mechanics took over:
Some Observations (3/10/2023)
That's what I have learned so far. Thanks for reading! Things may change, and new information may impact my conclusions. Here are some observations and lessons:
Hope you found this helpful!
Fortune favors the intelligent!
Hoda, Founder and CEO of StockCrd.io
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