Is SVB to big to fail? Will it get rescued? Bill Ackman already calling for bail-outs
A short timeline on what has happened to Silicon Valley Bank (SVB) and whether there is more contagion coming:
- SVB saw its deposits explode during the bubble of 2020, from $62 bn at the end of 2019 to $189 bn at the end of 2021.
- Due to 0% short-end rates, these firms went into long-duration investments (10+ year duration), as they could not generate the yield necessary on the deposits.
- As the bond bubble burst, the worst bond performance in over 100 years, they faced massive unrealized losses.
- These unrealized losses became realized losses at $1.8bn and needed to raise another $2.25bn in equity and debt.
- Bank run began as account holders cashed out balances above $250,000 (FDIC insurance threshold)
- Credit agencies have cut SVB’s ratings.
- Pressure has now spread to all U.S. banks that saw over $80 billion wiped out in the market cap.
- As a result, SVIB dropped 60% on March 9, with a further 24% pre-market
- While the CEO of SVB scrambles to reassure clients, where have we that before?
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