Thursday, March 9, 2023 to today

SVB Overview

• 209bn assets

• 175bn deposits

• 13-14bn market cap

• 16th largest bank

Financial Profile

• Heavily reliant on tech / VC companies - <10% deposits from stickier US domestic retail

• 90% deposits uninsured – very different form other banks (in a bad way)

• Low loan to deposit ratio – small lending book. Aka larger securities portfolio

• Large HTM investment portfolio, especially in higher yielding long duration USTs and MBS over Fed reserves and t bills

  • Huge interest rate risk exposure

  • 50%+ assets invested in fixed rate securities

  • Average maturity of HTM bond portfolio was 6+ years

• Mark to market losses

  • End of 2022: SVB had 15bn+ mark-to-market losses

What happened

• 2021 deposits doubled – concentrated in longer dated USTs

• Bank moved too slowly to shore up capital base, vulnerable to rapid deposit outflows

• ALM policy errors, mark to market losses exceeded equity base

  • Usually higher interest rates drive stronger earnings b/c loan rates rise faster than deposits

  • SVB had the opposite happen due to customer base

  • Why didn’t SVB manage the assets better, or raise capital sooner?

• Failed capital raise --> 42 billion deposit run on March 9

• Entered FDIC receivership on March 10

What the government did

• Yellen made FDIC make all depositors whole

• Bank Term Funding Program provides banks up to 12 months financing with qualifying assets used as collateral valued at par rather than mark to market

Prisoner’s dilemma

• A lot of SV investors banded together to ask companies to continue with SVB and support the bank

• Peter Thiel was the first to run away 

• Classic prisoner’s dilemma – once one starts, the rest will follow. How to get everyone to agree to stay with SVB? Impossible given human nature

What I am tracking now

• J Powell is supposed to hike rates again next week (week of 3/20/2023)  

• Which companies will benefit from this

  • Mercury deposits sky rocketed already and offered 3mm FDIC insured

  • Angellist launched custodial accounts to help startups

• Who will serve the large crypto institutions now that both Signature and Silvergate are dead

What will happen to startups now and the venture landscape

• Survival mode

  • Companies who were valuation sensitive will not be

  • Just get money to last 2 years

• Funders need to always have follow on capital reserved and strong capital providers around the table

Silvergate Capital profile

• 11+bn assets

• 6+bn deposits

• Market cap ~550mm

• Founded in 1988, pivoted to digital assets in 2013

• Large concentration in crypto – super risky

• 12 bn --> 4bn deposit run in Q4, post FTX

• Forced sale of security at huge losses

• Voluntary wind down and liquidation March 8