Estimated reading time: 2 minutes
But they chose to have 100% of nothing instead of 50% of something.
It started back in 2019 when SVB made a push for a Held-to-Maturity bond portfolio.
They proceeded to POUR capital into that portfolio,
About $20B / Quarter.
When interest rates started going up, they knew it would cause problems with this portfolio.
But since it’s an HTM portfolio, it’s tough to make changes quickly.
Sell one bond from that portfolio and you have to take the “mark to market” impact on the income statement.
So they settled on letting it wind down over time. (The CFO even said on the Q3’2021 conference call that it was unwinding $3B per quarter.
That was the issue…
This left little margin for error,
And a run of any degree would likely be catastrophic.
Their liquidity was locked up in the HTM bond portfolio.
Someone needed to step up and suggest raising more capital-
But no one did.
Raising more capital means diluting shares-
And no one wanted to do that.
Until it was a day late, and a dollar (or $46B) short.
Ultimately, it cost them everything.
They got 100% of nothing instead of 50% of something.
Sometimes we’re faced with these difficult decisions in life and there’s no way around it.
But the worst thing you can do when confronted with one is to get GREEDY.
Be smart.
Don’t get greedy.
Play the long game.
—
🔔 Follow Brian on Linkedin: Brian Pillmore
