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2023 bank failures

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Skipper

Skipper 6,127

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17 minutes ago, ryskey said:

 

Do you know how much of those loans are under water?  If it's as widespread as the tweeter is saying then yes this is a problem.  I'm bitter because there are lots of businesses that planned well, didn't use a lot of leverage, properly stress-tested their businesses, and aren't asking for help.

 

I don't. I don't practice in CRE so just here speculating like everyone else. I'm an investor in several different small commercial deals and did a review last night and I'm not overly concerned (fixed, conservatively structured and nothing maturing in near term).  It just seems like a bit of a chicken and the egg on a macro level. If credit becomes extremely tight (not only due to rates but now combined with widespread regional bank liquidity issues) asset values will inherently fall.  Tight credit means refi's likely require a lower LTV (with properties simultaneously appraising significantly lower).  I think everyone thought CRE was due for a tough couple of years regardless post Covid and rising rates, that's business, but concerned about this bank run amplifying that impact.  Will be something to watch.

 

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Nivek
Nivek

So we should bail out a bank and financial/business leaders of companies who stupidly put too much money in a single account because they were too lazy or too cheap to get a DIF insurance, open a CDAR

pantone159
pantone159

It is like nobody in the industry is over 40 and so has no memory of interest rates being other than zero. Interest rates now are not 'high'. They are about 'normal' now. The past 15 years have been t

washparkhorn
washparkhorn

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Jackson P. Neighbors

Jackson P. Neighbors 136

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For Release

WASHINGTON – The Federal Deposit Insurance Corporation (FDIC) entered into a purchase and assumption agreement for all deposits and loans of Silicon Valley Bridge Bank, National Association, by First–Citizens Bank & Trust Company, Raleigh, North Carolina.

The 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First–Citizens Bank & Trust Company on Monday, March 27, 2023.  Customers of Silicon Valley Bridge Bank, National Association, should continue to use their current branch until they receive notice from First–Citizens Bank & Trust Company that systems conversions have been completed to allow full–service banking at all of its other branch locations.

Depositors of Silicon Valley Bridge Bank, National Association, will automatically become depositors of First–Citizens Bank & Trust Company. All deposits assumed by First–Citizens Bank & Trust Company will continue to be insured by the FDIC up to the insurance limit. 

As of March 10, 2023, Silicon Valley Bridge Bank, National Association, had approximately $167 billion in total assets and about $119 billion in total deposits. Today's transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank, National Association's assets at a discount of $16.5 billion. Approximately $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC. In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million.

The FDIC and First–Citizens Bank & Trust Company entered into a loss–share transaction on the commercial loans it purchased of the former Silicon Valley Bridge Bank, National Association.  The FDIC as receiver and First–Citizens Bank & Trust Company will share in the losses and potential recoveries on the loans covered by the loss–share agreement.  The loss–share transaction is projected to maximize recoveries on the assets by keeping them in the private sector.  The transaction is also expected to minimize disruptions for loan customers.  In addition, First–Citizens Bank & Trust Company will assume all loan–related Qualified Financial Contracts.

The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership.

The FDIC created Silicon Valley Bridge Bank, National Association, following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation. All of the deposits—both insured and uninsured—and substantially all assets and all Qualified Financial Contracts of Silicon Valley Bank were transferred to the bridge bank. The purpose of establishing Silicon Valley Bridge Bank, National Association, was to allow time for the FDIC to stabilize the institution and market the franchise. 

Don't know much about the acquirer other than news reports that they're the 3rd largest buyer of failed depositories since the 08 crisis, so I suppose they know how to handle assets of a failed bank. 

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TKthunder2

TKthunder2 4,985

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5 hours ago, Jackson P. Neighbors said:

 Don't know much about the acquirer other than news reports that they're the 3rd largest buyer of failed depositories since the 08 crisis, so I suppose they know how to handle assets of a failed bank. 

They are currently a top 40 bank in the US, and have a robust M&A department. Since 2009 they acquired 23 institutions directly (and a few indirect ones listed below) including CIT Group 2022 (who acquired Mutual of Omaha Bank and OneWest Bank recently as well) and now SVB (who just acquired Boston Private back in 2021).

They’ll be a top 25 US FI once this settles with around $200 billion in assets (think HSBC, USAA, AMEX, UBS).

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Trey3216

Trey3216 15,343

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4 minutes ago, UT_OB1 said:

At 50 to 70 cents a share, is now the time to buy some SVB?  It can’t get worse, right?  Right?…

Well, it’s not really ideal while it’s in bankruptcy.   Those shares will be re-extinguished and new shares issued. So you’re basically playing the bankruptcy information game, which isn’t necessarily available to the public.    Good luck

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bernorange

bernorange 8,359

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A new report from the Congressional Research Service (CRS) showed that crypto losses did not cause the collapses of Silicon Valley Bank and Signature Bank, or even Silvergate, but fear of crypto exposure was the driving force behind the bank runs.

The CRS, a non-partisan agency which acts as a trusted resource to inform members of Congress, published ‘The Role of Cryptocurrency in the Failures of Silvergate, Silicon Valley, and Signature Banks’ on Tuesday. The report contradicts the popular narrative that the banks’ failures were caused by significant exposure to FTX and other failed crypto firms, or by losses from their own crypto products, ...

https://www.kitco.com/news/2023-04-27/Crypto-did-not-cause-Signature-Silvergate-and-SVB-collapses-and-FTX-exposure-was-minimal-Congressional-report.html

 

Quote

...
While the banks appear to have withstood direct exposures to specific crypto firms, some nevertheless experienced significant depletion of deposits as the steady series of failures deepened the crypto market downturn. After reaching an all-time high of around $3 trillion in November 2021, crypto lost more than two-thirds of its market capitalization by December 2022. As digital asset prices fell, centralized crypto platforms and stablecoin issuers experienced redemptions, likely causing them to draw down deposits held at these banks. To meet withdrawal demand, banks sold ostensibly safe securities for losses, affecting their liquidity and—in some cases—their solvency. In the fourth quarter of 2022, Silvergate’s deposits fell by more than half, hastening a drop that began earlier in the year (see Figure 2). Signature’s deposits fell by around 15% over the same period. So in this case, losses were not realized on crypto-related assets, but crypto deposit withdrawals caused banks to sell other assets at a loss.
...

https://crsreports.congress.gov/product/pdf/IN/IN12148

Fractional reserve banking at it's finest.

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Jackson P. Neighbors

Jackson P. Neighbors 136

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Post-mortem report by FRB just released: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230428a.htm

"Before discussing specific supervisory and regulatory changes that we should consider, I would like to touch on broader issues exposed by the failure of the bank.

First, the combination of social media, a highly networked and concentrated depositor base, and technology may have fundamentally changed the speed of bank runs. Social media enabled depositors to instantly spread concerns about a bank run, and technology enabled immediate withdrawals of funding."

Just wanted to post the link for everyone. I haven't read through anything but the introductory comments by Barr.

Edited by Jackson P. Neighbors
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DalTxHornFan

DalTxHornFan 3,097

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1 minute ago, Incredulity said:

Camels is a 1-5 rating.

1 =best

5=WTF

 

The CAMEL system's objective is to evaluate the "safety and soundness" of the financial institution under examination.  The overall CAMEL 3 rating indicates "below average" and triggers "regulatory concerns" about the financial institution.

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Incredulity

Incredulity 11,644

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2 minutes ago, DalTxHornFan said:

The CAMEL system's objective is to evaluate the "safety and soundness" of the financial institution under examination.  The overall CAMEL 3 rating indicates "below average" and triggers "regulatory concerns" about the financial institution.

I skimmed over the above report and specifically the conclusion.  

 

The conclusion:  More regulation could have prevented (paraphrasing of course).

 

My view:  maybe, maybe not. 

 

"higher rates are coming" has been the talking point for 20 plus years.  Every time we have inched that direction in the last 20 years shit has hit the fan and Fed capitulated.  Maybe this time is different and higher for longer is going to happen.   If so, there will be blood.

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Jackson P. Neighbors

Jackson P. Neighbors 136

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29 minutes ago, Handcruser said:


Explain it to me like I’m a golden retriever.

First chart shows ~12,500 man-hours devoted to "Continuous Monitoring" during 2022. Basically, FRB had examiners onsite at the bank for over a year, getting all the reports that management gets in real time. Yet... regulation was ineffective.

As others said, second chart shows CAMELS ratings resulting from in-depth regulatory examinations, the latest began in August 2022. After the exam, Liquidity and Sensitivity components (which were the drivers of failure ultimately) were rated 2- Satisfactory. Management was rated 3- Less than Satisfactory. The overall composite rating was also 3 which was a downgrade from the 2021 exam.

To sum up, when Management is rated 3 but all other components are rated 2 and the overall rating is 3, it means "We don't really like what you guys are up to, but we have no fucking clue how to fix it."

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DalTxHornFan

DalTxHornFan 3,097

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4 minutes ago, Incredulity said:

I skimmed over the above report and specifically the conclusion.  

 

The conclusion:  More regulation could have prevented (paraphrasing of course).

 

My view:  maybe, maybe not. 

 

"higher rates are coming" has been the talking point for 20 plus years.  Every time we have inched that direction in the last 20 years shit has hit the fan and Fed capitulated.  Maybe this time is different and higher for longer is going to happen.   If so, there will be blood.

I find it amazing that the bank operated so long without an incumbent ALCO officer.  I know that I've mentioned this upstream, but asset/liability matching is banking 101.  The current interest rate environment did not happen overnight.  An ALCO officer or committee that wasn't asleep at the switch would have had time to respond to the problem. 

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Jackson P. Neighbors

Jackson P. Neighbors 136

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13 minutes ago, DalTxHornFan said:

I find it amazing that the bank operated so long without an incumbent ALCO officer.  I know that I've mentioned this upstream, but asset/liability matching is banking 101.  The current interest rate environment did not happen overnight.  An ALCO officer or committee that wasn't asleep at the switch would have had time to respond to the problem. 

It reads like ALCO was in place, they simply botched the call of where rates were going. Amazing.

I'm going to get tinfoiley-hatty now (and that's not ever me), but this report just makes things seem too coincidental. 90% of it is non-public information, except when something like this happens. Report references forthcoming regulatory actions including multiple MOUs and MRBAs which are never publicly disclosed. CAMELS ratings and exam reports are very confidential. The 4Q financial numbers weren't significantly different from other recent quarters, so there was no obvious reason for a depositor to panic, especially so late in 1Q. But if this information were to be disclosed by someone either from the bank or regulatory side (FRB says no ethics violations in regulation have been discovered) to say, a very large and influential depositor, it could possibly result in some anxiety and, say, $40B in withdrawals in one day and $100B expected the following day...

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Incredulity

Incredulity 11,644

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Posted

or low level regulator is talking to their neighbor about how much work is being done at SVB at the kids soccer game sitting directly behind the sister-in-law of Peter Theil

 

****above is completely hypothetical,  just meant to illustrate one of millions of reasons why literally nothing remains a secret/confidential very long

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Jackson P. Neighbors

Jackson P. Neighbors 136

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Guess we'll just keep this rolling in this thread. Not to be outdone by their FRB rivals, the FDIC's Signature Bank report: https://www.fdic.gov/news/press-releases/2023/pr23033a.pdf released an hour or 2 ago.

image.png.ce3607bf85c4bb62125dfce2b0db6292.png

Eagerly awaiting the email from FDIC in a couple hours stating "...XYZ Bank agreed to assume all of the deposits of First Republic Bank..."

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DalTxHornFan

DalTxHornFan 3,097

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1 hour ago, Jackson P. Neighbors said:

It reads like ALCO was in place, they simply botched the call of where rates were going. Amazing.

I'm going to get tinfoiley-hatty now (and that's not ever me), but this report just makes things seem too coincidental. 90% of it is non-public information, except when something like this happens. Report references forthcoming regulatory actions including multiple MOUs and MRBAs which are never publicly disclosed. CAMELS ratings and exam reports are very confidential. The 4Q financial numbers weren't significantly different from other recent quarters, so there was no obvious reason for a depositor to panic, especially so late in 1Q. But if this information were to be disclosed by someone either from the bank or regulatory side (FRB says no ethics violations in regulation have been discovered) to say, a very large and influential depositor, it could possibly result in some anxiety and, say, $40B in withdrawals in one day and $100B expected the following day...

Anyone looking objectively at the embedded losses in the HTM portfolio vs. the stated equity of the bank would/should have smelled a rat.  It was out in the open in the KPMG audit report issued only days before SVB was closed. 

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Beau Vine

Beau Vine 54,203

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3 hours ago, Jackson P. Neighbors said:

To sum up, when Management is rated 3 but all other components are rated 2 and the overall rating is 3, it means "We don't really like what you guys are up to, but we have no fucking clue how to fix it."

Thank you, I was wondering how 5 2's and a 3 get a composite rating of 3.

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Beau Vine

Beau Vine 54,203

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Posted (edited)
1 hour ago, DalTxHornFan said:

If you have issues with management, it is kind of difficult to get past that in an overall rating about a financial institution's safety and soundness.

I don't know what their issues with management were, but from 10000 feet here, it appears that management had no understanding of interest rate risk and duration mismatching, which seems to be a gigantic fucking issue, seeing as how they were, you know, running a bank.  Yet they consistently were rated "satisfactory" in "sensitivity to market risk" rating.  Seems like you could slap an unsatisfactory rating on that just by looking at their balance sheet, without even having met any of the management team.  

Shit, that's almost as bad as the bond ratings guys slapping AAA ratings on mortgage backed bonds in 2008.

Edited by Beau Vine
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Wally Fairway

Wally Fairway 5,539

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21 minutes ago, Mullet Free said:


 

Maybe they will send us a toaster for having that new account>
And now that FRB has sunk, we should now focus our attention to figure out which bank is next - if you believe in the Wally jinx then Western Alliance should be on your radar, company I previously worked at banks with WAL. I finally get into a couple of tech related firms, and the banking market goes in the shitter. Good thing we aren't trying to close out a funding round (oh wait, we have 2 separate fundings that we are hoping (needing) to close by the end of the month.

Here is a good likeness of my persona 
The Cooler - Rotten Tomatoes

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Mullet Free

Mullet Free 40

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4 hours ago, Wally Fairway said:

Maybe they will send us a toaster for having that new account>
And now that FRB has sunk, we should now focus our attention to figure out which bank is next - if you believe in the Wally jinx then Western Alliance should be on your radar, company I previously worked at banks with WAL. I finally get into a couple of tech related firms, and the banking market goes in the shitter. Good thing we aren't trying to close out a funding round (oh wait, we have 2 separate fundings that we are hoping (needing) to close by the end of the month.

Here is a good likeness of my persona 
The Cooler - Rotten Tomatoes

 Western Alliance actually looks relatively ok. It's 3x the lows. PacWest is maybe the next one. Down 7% today and just 5% off the bottom of a couple months ago.

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UT_OB1

UT_OB1 2,213

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Posted
On 4/28/2023 at 1:26 PM, Jackson P. Neighbors said:

Guess we'll just keep this rolling in this thread. Not to be outdone by their FRB rivals, the FDIC's Signature Bank report: https://www.fdic.gov/news/press-releases/2023/pr23033a.pdf released an hour or 2 ago.

image.png.ce3607bf85c4bb62125dfce2b0db6292.png

Eagerly awaiting the email from FDIC in a couple hours stating "...XYZ Bank agreed to assume all of the deposits of First Republic Bank..."

So was this Nostradamus level shit or did everyone know this was coming today?

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Mullet Free

Mullet Free 40

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19 hours ago, Mullet Free said:

 Western Alliance actually looks relatively ok. It's 3x the lows. PacWest is maybe the next one. Down 7% today and just 5% off the bottom of a couple months ago.

I was wrong here. PACW 52w low was $5. It’s at $9 now. Still comparatively worse than WAL. Down 10% yesterday. 
 

I had missed that they changed a rule to allow this deal to go through. There was a limit of 10% of all deposits in one bank. No more. 
 

Also, some of these conclusions are contested in the comments, but they expect IRR of 20% on the deal. Nice, sweetheart deal it would appear. 
 

 

 

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TKthunder2

TKthunder2 4,985

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Yep, I cant believe they sent this over to chase. The market is fucked and giving one of the big 4 is not a good long term move. I figured they’d give them to a bank like Truist (formerly BB&T and Suntrust) which has $500b in assets and branches from Texas to New Jersey. FRB had California, New York, Massachusetts, and only lapping with them in Florida.

This would have made them the 7th biggest bank in the US, behind the big 4 and Morgan/Goldman. Strategically I think it’s better for the industry to have more $1trillion backs than 4 massive multi trillion ones.

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Mullet Free

Mullet Free 40

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20 hours ago, Mullet Free said:

 Western Alliance actually looks relatively ok. It's 3x the lows. PacWest is maybe the next one. Down 7% today and just 5% off the bottom of a couple months ago.

I take it all back. WAL down 24%. PACW down 29%. Come on down 

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