The Story:
On Wednesday, SVB announced it had sold a bunch of securities at a loss, and that it would also sell $2.25 billion in new shares to shore up its balance sheet.
That triggered panic among key venture capital firms, who reportedly advised companies to withdraw their money from the bank.
The bank's stock began plummeting Thursday morning and by the afternoon it was dragging other bank shares down with it as investors began to fear a repeat of the 2007-2008 financial crisis.
By Friday morning, trading in SVB shares was halted and it had abandoned efforts to quickly raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation.
Why did this happen:
SVB and other banks gobbled up during the era of ultra-low, near-zero interest rates. SVB's $21 billion bond portfolio was yielding an average of 1.79% - the current 10-year Treasury yield is about 3.9%.
While FED keeps raising its interest rates, at the same time, venture capital began drying up, forcing startups to draw down funds held by SVB. So the bank was sitting on a mountain of unrealized losses in bonds just as the pace of customer withdrawals was escalating.
Last Thursday, as I mentioned in my Streams a News titled "VC firms pull funds out of Silicon Valley Bank, CEO asks clients to stay calm" stated "Venture capitalists believe SVB can remain solvent but were fearful of a run on the bank, Semafor reported citing people familiar with the matter." This would literally happen to a mid-small bank like SVB. And just 48 hours, SVB collapsed.
Of course, if SVB liquidated all their assets, they could totally pay back vendors' money, but what they do not have is the time! If they really sold all their portfolio in a short period of time, what will happen to this market? All banks will be involved. That might be the real reason why SVB collapsed so fast because now they have enough time to deal with their portfolio and vendors.
What's next:
Smaller banks that are disproportionately tied to cash-strapped industries like tech and crypto may be in for a rough ride. The Fed’s rate-hiking campaign is taking down small banks, but big banks like JPM will be fine.
What to watch:
Chart: SPX weekly and daily
Chart: KBE weekly and daily
From the tech side of analysis, both SPX and S&P banks' ETF have been affected by this. SPX breaks its 200 EMAs daily and KBE breaks its sideway weekly support and directly drops to 39.6ish level. And both extended from its 8&21 EMAs, so far the biggest problem is not technical, is more about the market fears. People are more concerned about whether the 2008 financial crisis happen again at this level. But I prefer to believe it will not happen since the banks that are now in trouble are much too small to be a meaningful threat to the broader system. However, Friday's lows absolutely can not be trusted as out-for-long positions.
Drama ensues over the Silicon Valley Bank meltdown, while investors remain wary over a possible contagion effect. The headliner will be the consumer price index report for February with a slight moderation in the year-over-year inflation rate to +5.5% to +5.6%. Meanwhile, producer prices are forecast to decelerate to a 0.3% month-over-month gain from 0.7% in January.
But in my opinion, after SVB drama, FED will be concerned about interest champions becoming system damage, therefore, I prefer to believe there is no landing for the US economy.
Welcome to join my STREAM on Monday morning 6:40 AM EST to discuss the market with me.
Please feel free to express your ideas and thoughts in the comment section.
On Wednesday, SVB announced it had sold a bunch of securities at a loss, and that it would also sell $2.25 billion in new shares to shore up its balance sheet.
That triggered panic among key venture capital firms, who reportedly advised companies to withdraw their money from the bank.
The bank's stock began plummeting Thursday morning and by the afternoon it was dragging other bank shares down with it as investors began to fear a repeat of the 2007-2008 financial crisis.
By Friday morning, trading in SVB shares was halted and it had abandoned efforts to quickly raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation.
Why did this happen:
SVB and other banks gobbled up during the era of ultra-low, near-zero interest rates. SVB's $21 billion bond portfolio was yielding an average of 1.79% - the current 10-year Treasury yield is about 3.9%.
While FED keeps raising its interest rates, at the same time, venture capital began drying up, forcing startups to draw down funds held by SVB. So the bank was sitting on a mountain of unrealized losses in bonds just as the pace of customer withdrawals was escalating.
Last Thursday, as I mentioned in my Streams a News titled "VC firms pull funds out of Silicon Valley Bank, CEO asks clients to stay calm" stated "Venture capitalists believe SVB can remain solvent but were fearful of a run on the bank, Semafor reported citing people familiar with the matter." This would literally happen to a mid-small bank like SVB. And just 48 hours, SVB collapsed.
Of course, if SVB liquidated all their assets, they could totally pay back vendors' money, but what they do not have is the time! If they really sold all their portfolio in a short period of time, what will happen to this market? All banks will be involved. That might be the real reason why SVB collapsed so fast because now they have enough time to deal with their portfolio and vendors.
What's next:
Smaller banks that are disproportionately tied to cash-strapped industries like tech and crypto may be in for a rough ride. The Fed’s rate-hiking campaign is taking down small banks, but big banks like JPM will be fine.
What to watch:
From the tech side of analysis, both SPX and S&P banks' ETF have been affected by this. SPX breaks its 200 EMAs daily and KBE breaks its sideway weekly support and directly drops to 39.6ish level. And both extended from its 8&21 EMAs, so far the biggest problem is not technical, is more about the market fears. People are more concerned about whether the 2008 financial crisis happen again at this level. But I prefer to believe it will not happen since the banks that are now in trouble are much too small to be a meaningful threat to the broader system. However, Friday's lows absolutely can not be trusted as out-for-long positions.
Drama ensues over the Silicon Valley Bank meltdown, while investors remain wary over a possible contagion effect. The headliner will be the consumer price index report for February with a slight moderation in the year-over-year inflation rate to +5.5% to +5.6%. Meanwhile, producer prices are forecast to decelerate to a 0.3% month-over-month gain from 0.7% in January.
But in my opinion, after SVB drama, FED will be concerned about interest champions becoming system damage, therefore, I prefer to believe there is no landing for the US economy.
Welcome to join my STREAM on Monday morning 6:40 AM EST to discuss the market with me.
Please feel free to express your ideas and thoughts in the comment section.
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