When a CEO of a publicly-traded company says that, you know it’s time to put your head between your knees and grab your ankles. Especially after SVB CEO Gregory Becker, sold nearly 20% of his holdings in the company at $285 per share, ten days before the FDIC seized the bank.
Hours Before Bank Seized, SVB pays out annual bonuses to key employees
We should note; Becker’s stock sale, through the exercise of options, gave Becker a profit of $2.2mil, but he still owns 95,000 shares which were worth $27mil two weeks ago, yet are now likely to be worth no more than a few thousand dollars. That’s before the cost of the legal expenses Becker will undoubtedly be looking at in the days, months and years ahead). So sad.
Yet, thanks to social media megaphones in the hands of folks such as Peter Thiel, who will likely be given the George Soros Award [for Causing a Major Bank to Implode], very few passengers on SVB’s Gulfstream G550 had enough time to grab a barf bag, no less tighten their seat belts, before the plane carrying doe-eyed passengers, whose CEOS and CFOs never thought to take out flight insurance (i.e. by having their companies cash in short-term government securities, as opposed to non-interest bearing, totally unsecured savings and checking accounts) crash landed.
And, in a matter of a few hours last Thursday afternoon, when SVB President and CEO Greg Becker hosted a Zoom meeting to calm investors and customers after the bank’s stock price dropped 80% in a single day, he proclaimed, “the bank is n a strong position with lots of liquidity, so stay calm and don’t panic”, government regulators stepped in and seized the bank.
Throughout the past 48 hours, there has been no shortage of media pundits and ‘experts’ opining across social media about the collapse of SVB, most using 20-20 hindsight, and more than a handful serving as bomb-throwers (e.g. Bill Ackman).
Perhaps the most hysterical comment came from non-other than Donald Trump (the former President who is facing multiple criminal indictments while insisting he will seek his old job in the 2024 presidential election). Trump has unabashedly blamed “Out-Of-Control Democrats” for the SBV collapse, despite the fact that Trump signed the 2018 bill that rolled back Dodd-Frank, legislation that was designed to prevent exactly the type of bank failure that SBV succumbed to!
MarketsMuse editorial team will let the media and financial industry pundits perform forensic post-mortems as to what caused the collapse of the “Silicon Valley Banker to the Bros’, even if a 1st-year undergraduate taking Econ 101 could do the autopsy within ten minutes.
And, we’ll allow everyone else to speculate on the prospective impact on the start-up community, whether SVB’s collapse will cause a banking sector contagion and result in more bank runs, or whether the ripple effect will lead to another (well-deserved) rinsing in the overall stock market this coming week.
However, the editorial team at MarketsMuse can only chuckle when noticing how many see fit to blame SVB’s implosion on Federal Reserve Chairman Jay Powell. Why is it his fault?
Because, according to these muppets, “Powell’s increasing interest rates aggressively for the past year impaired SVB’s balance sheet”. Nobody wants to acknowledge the balance sheet was loaded with long-term maturity mortgage bonds and government securities they bought (using leverage) when interest rates were under 2%, and that SVB finance geniuses failed to hedge or simply sell out of the long-dated bonds and buy securities with shorter maturities that were paying higher interest rates. Do we guess they didn’t want to suffer a loss on those lousy trades? MORONS?
Just like Fundstrat’s genius Tom Lee, or Cathie Woods, the “iconic investor in innovation”, along with a bunch of other stock bulls who have continuously chosen to attribute their investment losses throughout the past 2 years to wild claims that “the stock market [and in particular, the overvalued, unprofitable companies we recommend investing in] would do just fine if only Jay Powell didn’t raise interest rates to fight inflation!”
Other than perhaps legendary skeptic and short seller Marc Cohodes, very few of the ‘observers’ who are tweeting post-mortems about SVB (even before rigor mortis has set in), have said “The writing was on the wall for the past 18 months-and we told you this would happen!” Harry Markopolos, the legendary skeptic who tried and failed to convince regulators that Bernie Madoff was running a multi-$billion Ponzi scheme would have been laughed at again if SVB were on his radar screen.
Instead, since the FDIC seized SVB on Friday, many across the PE, VC, and hedge fund community are crying out that “the US Treasury should bailout SVB”, with many insisting “it’s the Federal Government’s job to protect our investments in that bank..”
We think not. And for a host of reasons. Not because SVB is akin to the community bank Bailey Building and Loan, the bank portrayed in the iconic film starring Jimmy Stewart, “It’s a Wonderful Life”
Firstly, if Janet Yellin really thought SVB’s collapse will instigate a contagion that will threaten the national banking system, then she should reach out to JPMorgan’s Jamie Dimon, BofA’s Brian Moynihan, Morgan Stanley’s Jim Gorman (among others) and invite them to form a consortium to bailout SVB. This should not be (and must not be) a bailout that US taxpayers underwrite.
In fact, if the pragmatic solution is to have the ‘too big to fail’ banks bail out SVB, Jamie Dimon should insist that Elizabeth Warren appear on national television and say “PLEASE, Jamie-Help Us Solve the Crisis! Pretty Please?!”
Breaking News: The good news for those who are staunchly opposed to a government rescue (despite the whining of Bill Ackman who advocates the government to step in and rescue the Menlo Park bank) is that Janet Yellin said today (Sunday Mar 12) that the “US Treasury WILL NOT BAIL OUT SVB!”
Thank goodness for Janet Yellin displaying sensibility. And, with all due respect, we say F U to Bill Ackman, Mark Cuban, and the assortment of conflicted hypocrites!
Above-referenced and iconic short-seller Marc Cohodes will say, “I told you so.” He was short SVB last year (but closed the position so he could use his firepower to short Carvana). And Cohodes is now advocating short-selling other banks, including Signature Bank (NASDAQ:$SBNY) “because it’s a notorious money-laundering operation for the crypto community.” (Editor Note: He’s not the only one that believes that).
BREAKING NEWS: COHODES SHORT OF $SBNY PROVES PRESCIENT HOURS AFTER HE DISCLOSED HE WAS SHORT; SUNDAY MAR 12 2023 NEW YORK REGULATORS SEIZE SIGNATURE BANK
Signature Bank Board Member Barney Frank has “no comment”. Trump’s favorite New York City Bank Gets Busted.
Cohodes was shorting SVB shares likely because of the following 6 Reasons:
- he knows how to read a balance sheet, which was highly leveraged with long-term bond holdings (purchased on margin) in the face of a historic rising interest rate regime)
- the SVB balance sheet was also comprised of billions of dollars of loans to unprofitable startups that collateralized those loans with warrants in their non-publicly traded stocks, with no visibility towards an IPO event,
- SVB had no Risk Officer since last April until January of this year (Laura Izurieta, the former CRO cashed out in April after taking a $4mil severance and she wasn’t replaced until January of this year),
- that there was no adult in the room overseeing risk management, and SVB’s Risk Committee included not a single independent individual who works in the banking industry
- that when/if those start-ups actually figured out that their cash deposits at SVB were not insured or secured, and then determined it was prudent to pull their cash out, it would decimate SVB’s entire balance sheet, and leave them stuck without their cash
- $SVIB was on CNBC’s Jim Cramer’s list of “best stock picks for 2023”
- Editor Note: Take a look at Matt Tuttle‘s overview of his latest ETF, the Jim Cramer Tracker Inverse ETF BATS:SJIM
- The Board of Directors of SVB is INEPT. Hindsight is not needed to appreciate SVB’s BOD is [mostly*] packed with startup founders who have NO risk management credentials, sitting alongside the former CEO of Barclays, a bank that that got hit with more fines for internal control failures than any bank of its size.
*Hard to understand what SVB Director Mary Miller has been doing or where she has been for the past 18 months. After all, she was U.S Treasury Under Secretary for Domestic Finance for a couple of years. She’s been a board member of SVB since 2015; one would think she should have raised her hand and asked a few questions at more recent SVB board meetings.
Will the SVB debacle lead to contagion across the regional banking industry? Maybe, if depositors who have not bothered to move their savings accounts into higher-yielding, short-term US Treasuries stampede in mass this week and withdraw their funds from their shitbanks, in turn, cause those bank asset balances to drop precipitously. Or Maybe Not.
Will there be a firesale of selling in shares of regional bank stocks in the coming days? Maybe. Maybe not.
Will the financial industry’s grave dancers, opportunistic PE firms, and larger banks step in to buy stakes in those banks at big discounts? If there is a firesale, count on Bill Ackman, Ken Griffin, Steve Cohen, Thomas Petterfy, and others in that crowd to step in alongside Jamie Dimon and brethren big banks to scoop up shares at big markdowns.
One very astute trader we spoke with, who is hopeful the markets this week will create lop-sided pricing cited the famous words of Lieutenant Colonel Kilgore (Robert Duvall) in the classic film, “Apocolypse Now”; “I love the smell of napalm in the morning!”