I think that if wasn’t a contagion, the Fed wouldn’t be proposing to drop rates by 75 bps. This is a move to save banks, but it also pushes inflation up.
A newswire report by morningstar was posted on Friday (subsquently removed), mentioning the following banks showing similar risks as SVB (20 banks that are sitting on huge potential securities losses—as was SVB | Morningstar)
First, a quick look at SVB
Some media reports have referred to SVB of Santa Clara, Calif., as a small bank, but it had $212 billion in total assets as of Dec. 31, making it the 17th largest bank in the Russell 3000 Index as of Dec. 31. That makes it the largest U.S. bank failure since Washington Mutual in 2008.
One unique aspect of SVB was its decades-long focus on the venture capital industry. The bank’s loan growth had been slowing as interest rates rose. Meanwhile, when announcing its $21 billion dollars in securities sales on Thursday, SVB said it had taken the action not only to lower its interest-rate risk, but because “client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted.”
SVB estimated it would book a $1.8 billion loss on the securities sale and said it would raise $2.25 billion in capital through two offerings of new shares and a convertible bond offering. That offering wasn’t completed.
So this appears to be an example of what can go wrong with a bank focused on a particular industry. The combination of a balance sheet heavy with securities and relatively light on loans, in a rising-rate environment in which bond prices have declined and in which depositors specific to that industry are themselves suffering from a decline in cash, led to a liquidity problem.
Banks leverage their capital by gathering deposits or borrowing money either to lend the money out or purchase securities. They earn the spread between their average yield on loans and investments and their average cost for funds. The securities investments are held in two buckets:
In its regulatory Consolidated Financial Statements for Holding Companies–FR Y-9C, filed with the Federal Reserve, SVB Financial, reported a negative $1.911 billion in accumulated other comprehensive income as of Dec. 31. That is line 26.b on Schedule HC of the report, for those keeping score at home. You can look up regulatory reports for any U.S. bank holding company, savings and loan holding company or subsidiary institution at the Federal Financial Institution Examination Council’s National Information Center. Be sure to get the name of the company or institution right – or you may be looking at the wrong entity.
Here’s how accumulated other comprehensive income (AOCI) is defined in the report: “Includes, but is not limited to, net unrealized holding gains (losses) on available-for-sale securities, accumulated net gains (losses) on cash flow hedges, cumulative foreign currency translation adjustments, and accumulated defined benefit pension and other postretirement plan adjustments.”
In other words, it was mostly unrealized losses on SVB’s available-for-sale securities. The bank booked an estimated $1.8 billion loss when selling “substantially all” of these securities on March 8.
The list of 10 banks with unfavorable interest margin trends (running similar trends to SVB)
| Bank |
Ticker |
City |
AOCI ($mil) |
Total equity capital ($mil) |
AOCI/ TEC-- AOCI
|
Total assets ($mil) |
| Customers Bancorp Inc. |
CUBI |
West Reading, Pa. |
($163) |
$1,403 |
-10.40% |
$20,896 |
| First Republic Bank |
FRC |
San Francisco |
($331) |
$17,446 |
-1.90% |
$213,358 |
| Sandy Spring Bancorp Inc. |
SASR |
Olney, Md. |
($132) |
$1,484 |
-8.20% |
$13,833 |
| New York Community Bancorp Inc. |
NYCB |
Hicksville, N.Y. |
($620) |
$8,824 |
-6.60% |
$90,616 |
| First Foundation Inc. |
FFWM |
Dallas |
($12) |
$1,134 |
-1.00% |
$13,014 |
| Ally Financial Inc. |
ALLY |
Detroit |
($4,059) |
$12,859 |
-24.00% |
$191,826 |
| Dime Community Bancshares Inc. |
DCOM |
Hauppauge, N.Y. |
($94) |
$1,170 |
-7.50% |
$13,228 |
| Pacific Premier Bancorp Inc. |
PPBI |
Irvine, Calif. |
($265) |
$2,798 |
-8.70% |
$21,729 |
| Prosperity Bancshare Inc. |
PB |
Houston |
($3) |
$6,699 |
-0.10% |
$37,751 |
| Columbia Financial, Inc. |
CLBK |
Fair Lawn, N.J. |
($179) |
$1,054 |
-14.50% |
$10,408 |
| SVB Financial Group |
SIVB |
Santa Clara, Calif. |
($1,911) |
$16,295 |
-10.50% |
$211,793 |
Banks with the highest percentage of negative AOCI to capital
| Bank |
Ticker |
City |
|
AOCI ($mil) |
Total equity capital ($mil) |
AOCI/ (TEC – AOCI)
|
Total assets ($mil) |
| Comerica Inc. |
CMA |
Dallas |
|
($3,742) |
$5,181 |
-41.90% |
$85,406 |
| Zions Bancorporation N.A. |
ZION |
Salt Lake City |
|
($3,112) |
$4,893 |
-38.90% |
$89,545 |
| Popular Inc. |
BPOP |
San Juan, Puerto |
Rico |
($2,525) |
$4,093 |
-38.20% |
$67,638 |
| KeyCorp |
KEY |
Cleveland |
|
($6,295) |
$13,454 |
-31.90% |
$189,813 |
| Community Bank System Inc. |
CBU |
DeWitt, N.Y. |
|
($686) |
$1,555 |
-30.60% |
$15,911 |
| Commerce Bancshares Inc. |
CBSH |
Kansas City, Mo. |
|
($1,087) |
$2,482 |
-30.50% |
$31,876 |
| Cullen/Frost Bankers Inc. |
CFR |
San Antonio |
|
($1,348) |
$3,137 |
-30.10% |
$52,892 |
| First Financial Bankshares Inc. |
FFIN |
Abilene, Texas |
|
($535) |
$1,266 |
-29.70% |
$12,974 |
| Eastern Bankshares Inc. |
EBC |
Boston |
|
($923) |
$2,472 |
-27.20% |
$22,686 |
| Heartland Financial USA Inc. |
HTLF |
Denver |
|
($620) |
$1,735 |
-26.30% |
$20,244 |
| First Bancorp |
FBNC |
Southern Pines, |
N.C. |
($342) |
$1,032 |
-24.90% |
$10,644 |
| Silvergate Capital Corp. Class A |
SI |
La Jolla, Calif. |
|
($199) |
$603 |
-24.80% |
$11,356 |
| Bank of Hawaii Corp |
BOH |
Honolulu |
|
($435) |
$1,317 |
-24.80% |
$23,607 |
| Synovus Financial Corp. |
SNV |
Columbus, Ga. |
|
($1,442) |
$4,476 |
-24.40% |
$59,911 |
If banks holding degraded investments have to sell in order to raise capital, it could become endemic to the smaller banks which are all over the country.
Bank failures since 2000- (Georgia is different: Until 1996, a bank couldn’t open branches across county lines and there are 159 counties in the state, so there were a lot of banks. And three of the top 10 fastest growing counties were around Atlanta back then, so when the financial crisis hit, it really hit the state hard.)
Another dig at SVB, is that they haven’t have a chief risk officer, prior to this Jan, for 9 months. Something seriously wrong there. SVB had no official chief risk officer for 8 months | Fortune
