The Lemon Fool

The collapse of Silicon Valley bank, just after insiders sold:

https://twitter.com/smartertrader/statu ... 93858?s=21

has reversed the expectations from a 50 basis points raise at the next Fed meeting, to a 25 basis point raise.

Difficult to know if this is the beginning of a series of US bank collapses or just a one off, but it will likely make predicting Fed interest rate policy more difficult. If other banks go down, the Fed may have to cut rates despite inflation being still high.


Regards,

odysseus2000 wrote:The collapse of Silicon Valley bank, just after insiders sold:
If other banks go down, the Fed may have to cut rates despite inflation being still high.

Higher rates should be good for banks as it increases the spread and thus their profitability. Assuming they are well managed of course.

V8

88V8 wrote:

odysseus2000 wrote:The collapse of Silicon Valley bank, just after insiders sold:
If other banks go down, the Fed may have to cut rates despite inflation being still high.

Higher rates should be good for banks as it increases the spread and thus their profitability. Assuming they are well managed of course.

V8

Yes, it helps banks, but only if their loans are to solid business and in many cases they are not. Once business get in trouble banks start to see loans go bad trumping any advantages from higher interest rates. Silicon Valley bank is a classic example of how higher rates kill banks.

Regards,

88V8 wrote:

odysseus2000 wrote:The collapse of Silicon Valley bank, just after insiders sold:
If other banks go down, the Fed may have to cut rates despite inflation being still high.

Higher rates should be good for banks as it increases the spread and thus their profitability. Assuming they are well managed of course.

V8

But this is not about profitability, which is irrelevant in the short term. It’s only liquidity that matters in cases such as this when the psychology of depositors turns and they start a run on the bank.

It's the second largest bank failure in US history. However, it doesn't appear to be systemic and other banks are well capitalised.

AiY(D)

AsleepInYorkshire wrote:It's the second largest bank failure in US history. However, it doesn't appear to be systemic and other banks are well capitalised.

AiY(D)

Yes, unlikely to be systemic, but still very bad news for any company that banks with SVB. I saw someone had listed some UK companies with exposure elsewhere yesterday, however, my understanding is that the UK bank is ring-fenced from the US parent.

AsleepInYorkshire wrote:It's the second largest bank failure in US history. However, it doesn't appear to be systemic and other banks are well capitalised.

AiY(D)

Didnt they say something similar in 2008......?

Oooh look at RBS. What a magnificent bank.

88V8 wrote:[Higher rates should be good for banks as it increases the spread and thus their profitability. Assuming they are well managed of course. V8

I hold HSBC & StanChart on the basis they're deposit heavy institutions, the raising of rates should therefore in theory provide both HSBC & StanChart with significant tailwinds. If it turns out they're exposed via converting deposits into fixed interest a la Silicon Valley Bank that would be both surprising and the basis of a fundamental total reappraisal of the investment case for both banks as I see it. Opinions/re-assurance gratefully received!

Tedx wrote:

AsleepInYorkshire wrote:It's the second largest bank failure in US history. However, it doesn't appear to be systemic and other banks are well capitalised.

AiY(D)

Didnt they say something similar in 2008......?

Oooh look at RBS. What a magnificent bank.

It’s easy to forget what caused the GFC but this is nothing like that. Unless you equate mortgage backed securities such as CDO’s and their derivatives with US Government bonds. Frankly, that would be absurd.

simoan wrote:

Tedx wrote:

AsleepInYorkshire wrote:It's the second largest bank failure in US history. However, it doesn't appear to be systemic and other banks are well capitalised.

AiY(D)

Didnt they say something similar in 2008......?

Oooh look at RBS. What a magnificent bank.

It’s easy to forget what caused the GFC but this is nothing like that. Unless you equate mortgage backed securities such as CDO’s and their derivatives with US Government bonds. Frankly, that would be absurd.

I'm not. And to think that I am is absurd.

Tedx wrote:

simoan wrote:

Tedx wrote:

AsleepInYorkshire wrote:It's the second largest bank failure in US history. However, it doesn't appear to be systemic and other banks are well capitalised.

AiY(D)

Didnt they say something similar in 2008......?

Oooh look at RBS. What a magnificent bank.

It’s easy to forget what caused the GFC but this is nothing like that. Unless you equate mortgage backed securities such as CDO’s and their derivatives with US Government bonds. Frankly, that would be absurd.

I'm not. And to think that I am is absurd.

Not sure why you mentioned RBS and 2008 then? This is a liquidity problem at a bank heavily exposed to a single industry with a very high level of unsecured deposits, which had a liquidity problem. Like the LDI crisis here last autumn, this will be stamped on by the US authorities and forgotten about in due course.

Small bank run at competitor to svb:

https://twitter.com/jeetsidhu_/status/1 ... DCpgdbFBxg

Etsy delays sellers payouts:

https://twitter.com/mukund/status/16346 ... DCpgdbFBxg

How the Fed reacted to previous bank crisis:

https://twitter.com/nicktimiraos/status ... DCpgdbFBxg

Kind of interesting to see what the Fed will do.

If they let the svb customers take a haircut there could be runs on other banks & who then knows where this contagion stops. The stresses to the system in going from essentially zero interest rates to what we have now are the largest shocks to the system ever.

Regards,

odysseus2000 wrote:If they let the svb customers take a haircut there could be runs on other banks & who then knows where this contagion stops. The stresses to the system in going from essentially zero interest rates to what we have now are the largest shocks to the system ever.

The thing is, a well run bank with less flighty and profitable depositors would never get into this situation in the first place. It seems SVB was almost run like a Ponzi scheme that relied on money coming in from the VC industry. When that dried up, they then needed to generate cash by selling off assets on the balance sheet because most of their customers are rubbish companies with no cashflow themselves.

It really is one big lesson in cashflow management and what goes wrong when it dries up and you’re left having to sell assets at a loss.

Incredibly stupid of so many tech companies putting all their corporate funds into one relatively small bank and so not able to pay next week's wages!
These clever tech guys seem to have little common sense!

Yellen says no bailout:

https://twitter.com/ap/status/163491192 ... cxhdO8nfbA

Regards,

scrumpyjack wrote:Incredibly stupid of so many tech companies putting all their corporate funds into one relatively small bank and so not able to pay next week's wages!
These clever tech guys seem to have little common sense!

The "deal" with SVB seems to be that if they lend your startup company money they insist that you bank 100% with them. I suppose they want to ensure the accounts if a startup is successful.

scrumpyjack wrote:Incredibly stupid of so many tech companies putting all their corporate funds into one relatively small bank and so not able to pay next week's wages!
These clever tech guys seem to have little common sense!

If you have ever met some of them you would know that they don't have any common sense. They are probably wandering around with odd socks on and lots of everyday tasks just don't get into their brain space.

Most are on another level and highly focus on an issue, probably very complex so putting on matching socks is just beneath them.

"He can tell you the square root of the surface area of a jar of coffee! Just don't ask him to take it off" Was a description of a new chap that started work for me.

Gerry557 wrote:

scrumpyjack wrote:Incredibly stupid of so many tech companies putting all their corporate funds into one relatively small bank and so not able to pay next week's wages!
These clever tech guys seem to have little common sense!

If you have ever met some of them you would know that they don't have any common sense. They are probably wandering around with odd socks on and lots of everyday tasks just don't get into their brain space.

Most are on another level and highly focus on an issue, probably very complex so putting on matching socks is just beneath them.

"He can tell you the square root of the surface area of a jar of coffee! Just don't ask him to take it off" Was a description of a new chap that started work for me.

And yet in the by & by one occasionally gets a Steve Jobs.

Regards,