SVB in Talks to Sell Itself After Capital Raise Fails, CNBC Says
Comment of the Day

March 10 2023

Commentary by Eoin Treacy

SVB in Talks to Sell Itself After Capital Raise Fails, CNBC Says

This article may be of interest. Here is a section: 

SVB Financial Group is in talks to sell itself after attempts to raise capital amid a bank run failed, CNBC reported.

Large financial institutions are looking at a potential purchase of the company, CNBC said Friday.

SVB — which for months has been adamant that it wouldn’t significantly restructure its balance sheet — stunned investors Wednesday when it said it would issue $2.25 billion of shares and booked a $1.8 billion loss on the sale of a large part of its available-for-sale securities.

The Santa Clara, California-based company took steps this week to shore up capital after being hit by losses on its securities portfolio and a slowdown in funding at the venture capital-backed firms it serves.

The stock, which tumbled 60% on Thursday, plunged as much as 69% early Friday in New York before trading was halted. The company’s bonds posted record declines, igniting a broad selloff in bank shares around the world.

Eoin Treacy's view

The demise of SVB which had a market cap of $40 billion and deposits of $173 billion in December has raised the spectre of deeper issues in the banking sector. SVB was lending to start ups and that business has been eviscerated by the run up in rates.

Most banks are not in that business line, but several pension funds are among the investors in the company. The extent to which other pensions have unrealised losses in venture/startup investments is where the risk of contagion is concentrated. In a crisis, you sell what you can, not what you wish.
Credit Suisse is also still trending lower and has not yet found a convincing low. That suggests the balance sheet has not yet been fully secured despite revenue raising measures to date.
Another company I am paying particular attention to is Bread Financial. When I was renovating my home a year ago, I was offered interest free finance at almost every store. Bread Financial is the provider of store credit cards for the majority of the home improvement sector.

As those interest free periods roll off and interest rates ramp higher, there is a good chance defaults will also rise. The share was down heavy this week as it retreats from the region of the 200-day AM.

The basic assumption of a Fed hiking cycle is they will keep going until something breaks. Yesterday’s jobless figures was higher than expected and today’s payroll’s figure was stronger than expected even if wage growth slowed. That suggests a skills mismatch rather than a major problem. Of course, monetary conditions are tightening, so it is reasonable to expect unemployment to trend higher eventually, it just hasn’t happened yet.
Global bond markets rebounded in a dynamic manner today and gold continues to steady around $1800. That suggests traders are pricing in the potential the Fed is closer to the peak of the hiking cycle.

The 2-year Treasury yield posted a large downside weekly key reversal. That suggests 5% is sufficiently attractive to encourage demand when uncertainty in other asset classes is ramping higher. 

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