$SIVB bank crisis in short:
1. Bank grows from $60b to $189b in depositors from 2019 to 2022
2. Bank starts to invest $80b in MBS and bonds alike for which they get 1.5%
3. Investors and clients start to bleed money as valuations come down. Depositors start to drift.
4. As Rates go up, bonds go down which would not be an issue of held until maturity.
5. The bank starts protecting against lost deposits by selling their bonds at a loss.
6. The bank announces an offering to try and raise $2.25 billion.
7. The move to provide liquidity in this manner scares investors through the lack of liquidity as well as the level of urgency a fire sale entails.
8. 2.7% of SVB deposits are FDIC insured, 97.3% aren't. People want to be safe and start to rush to get their capital out.
9. Investors and depositors reacted by initiating withdrawals of $42 billion in deposits from the Bank on March 9, 2023, causing a run on the Bank.
10. As of the close of business on March 9, the bank had a negative cash balance of approximately $958 million.
11. More start to panic. The more panic out the more investments SBV needs to sell (a big portion at a loss) and the more they need to raise capital/dilute shareholders.
Major takeaway:
In my view the main panic happened through the willingness to sell part of the investments at a major loss.
It looks like the main mistake was made within the bond hedge against the interest rates.
$550m swaps vs a $30b position for example, which is down from a $10b hedge in 2021.
They could have bought CDS against a drastic move cheaply then. You would think that with an $80b investment they would find a way to hedge.
https://twitter.com/TheShortBear/status/1634382423998726144
