The Deep Dive

The Regional Bank Crisis

Good morning,

This week’s Deep Dive was the easiest choice yet and is exactly the original reason for this publication. To provide a venue for going incredibly deep on key stories, while keeping The Monday Morning Playbook to the absolute most essential charts.

While there still will be no wild speculation about what this means for the banking sector or how the Fed will react, I am going to take you through a technical and price-first view of what happened and what it means for your portfolios.

Specifically, this report will cover:

• What happened

• What is the technical setup for the areas most affected

• What it means for the macro

Let’s dive in!

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What happened

Of course, it was the one called Silicon Valley Bank

The above chart of SIVB isn’t accurate. Because SIVB is worth $0. Equity totally wiped out. More on this later, but the stock was down 65% before last week and hadn’t been above its 200-DMA in more than a year.

Part I of the story is this

There are a lot of proxies I could show, but the fact is that Silicon Valley Bank was especially exposed to the tech/growth/IPO bubble that has spent the past two years deflating. The IPO ETF was down more than 60% from its highs, and that’s the companies that were strong enough to go public. Imagine the valuation haircut for companies that hadn’t yet. That’s Part I of the story.

Part II is rising rates

While having an incredibly un-diverse and highly uninsured depositor base didn’t help, SIVB doesn’t go under without Part II to our story, rising rates. As deposits boomed during 2020 (as the IPO ETF was skyrocketing) the bank didn’t have enough places to put money to work. So it invested in a combination of long-term Treasuries and MBS when yields were extremely low. As the Fed hiked rates, most of those bonds fell 10-20% in value.

Now technically, the bonds were put in a “held to maturity” portfolio and didn’t have to be marked to market. But when some VCs got wind of an asset sale of some of these bonds, they urged all their clients to get their money out, forcing more sales, which caused more losses, which caused more depositors to panic, causing more sales and losses and you get the idea. BANK RUN!

Pretty much this

Joey Politano 🏳️‍🌈 @JosephPolitano

TLDR on Silvergate and Silicon Valley Bank:

SIVB was the second-biggest bank failure in US history