The Financial Times, Two Weeks Ago: ‘Silicon Valley Bank Profit Squeeze in Tech Downturn Attracts Short Sellers’

The Financial Times had Silicon Valley Bank’s problem nailed, two weeks ago (non-paywalled mirror of the story at Financial Post):

Silicon Valley Bank, the Californian institution central to financing U.S. startups, is facing scrutiny over an investment decision made at the peak of the tech boom that is squeezing its profitability just as the industry faces its worst downturn in decades. [...]

But some analysts, shareholders and short sellers point to another problem of its making: a move to put US$91 billion of its assets into a poorly performing bond portfolio that has since amassed an unrealized US$15 billion loss. [...]

While interest rates were low, several big banks parked more deposits into government debt accepting the lower rate of return during a time of economic uncertainty However, SVB’s relative exposure far exceeds its peers. It had US$120 billion of investment securities — which include its US$91 billion mortgage-backed securities portfolio — at the end of 2022, far exceeding its US$74 billion total loans.

By comparison, Bank of America had US$863 billion of debt securities, including US$633 billion of held-to-maturity assets, less than its approximate US$1 trillion of loans and leases. San Francisco-based First Republic, SVB’s closest rival in Silicon Valley, had US$55 billion in investment securities including US$28 billion of held-to-maturity debt securities, compared to US$167 billion in total loans.

Remarkably prescient reporting.

Saturday, 11 March 2023