Let\u2019s dive in and see what\u2019s really going on there.<\/p>\n
The day before yesterday, SVB Financial Group #SIVB which is the parent company of Silicon Valley Bank reported that it sold securities from its portfolio with a $1.8 billion loss, and is now attempting to raise $2.25 billion through the placement of common and preferred shares. #SIVB fell 61% to $105 the other day yet the sales didn’t end there.<\/p>\n
\u2022 <\/strong> The entire banking sector suffered a major hit yesterday \u25ba SPDR S&P Bank ETF #KBE -6.7%; SPDR S&P Regional Banking ETF #KRE -7.6% Four Critical Aspects<\/strong> Details of the latest SVB report<\/strong> In recent months, regulating authorities have expressed concerns about banks’ unrealized losses on investment securities. In December, the Federal Deposit Insurance Corporation (FDIC) reported that American banks’ unrealized losses on available-for-sale (AFS) and held-to-maturity (HTM) securities totaled $690 billion as of September 30, 2022, \u25ba up 47% as compared to the previous quarter.<\/p>\n On December 1, the FDIC chairman stated that the combination of a high level of longer\u2013term asset maturities and a moderate decline in total deposits underscores the risk that these unrealized losses could become actual losses should banks need to sell securities to meet liquidity needs. \u25ba Losses can be “significant.”<\/p>\n \u25ba SVB Financial Group’s assets and deposits nearly doubled in 2021. Most of them were invested in U.S. treasury bonds and other government-funded debt securities. Shortly after, the Fed kicked off its rate hike campaign \u25ba The latest developments accentuate a huge problem that\u2019s brewing for U.S. lenders who witness how rising interest rates chop away at the cost of their bonds. Interestingly, the banks don’t suffer losses right away\u2014it only happens in case of the sale, as it did with SVB.<\/p>\n The day before yesterday, SVB Financial Group #SIVB which is the parent company of Silicon Valley Bank reported that it sold securities from its portfolio with a $1.8 billion loss, and is now attempting to raise $2.25 billion through the placement of common and preferred shares. #SIVB fell 61% to $105 the other day yet the sales didn’t end there.<\/p>\n","protected":false},"author":1,"featured_media":18166,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[202],"tags":[204],"class_list":["post-18165","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics-en","tag-economics"],"yoast_head":"\n
\n\u2022 <\/strong> Specific financial leaders \u25ba JPMorgan #JPM -5.2%; Bank of America #BAC -6%; Wells Fargo #WFC-5.8%; Charles Schwab #SCHW -10.5%
\n\u2022 <\/strong> Regional banks were hit particularly hard \u25ba First Republic #FRC -16%; USB #USB -6.5%; Zions Bancorporation #ZION -11%; Comerica #CMA -7.5%<\/p>\n
\n\u2022 <\/strong> SVB Financial Group is a key lender for early-stage companies and a banking partner for nearly 50% of American venture technology and medical companies that entered the stock markets in 2022
\n\u2022 <\/strong> SVB Financial Group\u2019s stocks suffered the greatest losses in the last 25 years
\n\u2022 <\/strong> Venture capital funding may become limited in the coming years
\n\u2022 <\/strong> Customer cash burn went up in February; meanwhile, the investors extrapolate this to the rest of the industry<\/p>\n
\n\u2022 <\/strong> The year-end balance sheet demonstrates $91.3 billion in securities classified as those held to maturity. What makes this classification important is that it enables us to exclude losses on securities from both profit and equity.
\n\u2022 <\/strong> A footnote to the report states that the fair market value of these securities totals $76.2 billion, i.e. $15.1 billion below their reported value. The year-end value gap was nearly equal to SVB’s net worth of $16.3 billion.<\/p>\nIn essence<\/h3>\n
Let\u2019s sum things up<\/h3>\n
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