April 2023 | Equity Commentary

Published on May 12th, 2023

Stocks moved slightly higher in the month of April, with the S&P 500 index rising 1.6%. Eight of 11 S&P 500 sectors posted positive performance, with value stocks slightly outperforming growth stocks.¹ Regional bank stress continued to hover in the headlines throughout the month, culminating with the closure of First Republic Bank on May 1—a failure that many market watchers had come to expect.² Trading in regional bank stocks remained volatile, but the muted reaction from the broader markets suggests fear of contagion remains relatively low. The fixed income markets also showed little signs of investors fleeing for safety, with the 10-year Treasury bond yield moving only slightly lower in April, from 3.48% to 3.44%.³

The news of First Republic Bank’s failure also came with an announcement from JPMorgan and the FDIC. Under the agreement, JPMorgan would assume most of First Republic’s $92 billion in deposits and would buy most of the bank’s assets, with the FDIC agreeing to share losses on some of First Republic’s loans. JPMorgan CEO Jamie Dimon and Federal Reserve Chairman Jerome Powell both made statements suggesting that First Republic’s failure marked the end of this chapter of the regional bank stress,⁴ but it’s also true that crises in confidence tend to be very difficult to predict. Regional bank stocks remain under pressure, and we will still need to monitor the downstream effects on credit conditions and loan activity as the year progresses.

The Bureau of Economic Analysis (BEA) reported that the US economy grew by 1.1% in the first quarter, well below consensus forecasts of 1.9% and also the 2.6% growth rate posted in Q4 of last year. According to the BEA, the growth deceleration was primarily driven by a decline in inventories and business investment (as measured by nonresidential fixed investment). A bright spot in the GDP report was consumer spending, which benefited from a surge in retail sales posted early in the year. Imports and exports also increased.⁵

A majority of S&P 500 companies have now reported Q1 earnings, and the overarching takeaway is that corporations largely performed better-than-expected. As of May 5, with 85% of S&P 500 companies reporting results, 79% posted a positive earnings-per-share (EPS) surprise and 75% beat consensus expectations on revenues. According to Factset, Q1 2023 marked the best earnings performance relative to expectations since Q4 2021.⁶ Notably, large money center banks like JPMorgan, Citi, and Wells Fargo all reported strong earnings and expanding net interest margins,⁷ which was partly driven by an influx of new customers leaving regional banks. 

The Bureau of Labor Statistics reported that inflation (consumer price index, CPI) rose by 0.4% in April, following a 0.1% increase in March. Year-over-year, CPI registered at 4.9% in April, down from March’s 5% and February’s 6% year-over-year increase. April’s CPI reading marked the smallest increase since May 2021. Core prices, which strip out food and energy, were higher at 5.5% y-o-y, largely because of pressure in services prices—and specifically the shelter component, which makes up one-third of the index. The upshot here is that shelter prices measure what renters and homeowners are paying for new and existing leases, which means meaningful declines in rents will not show up immediately in the CPI number.⁸ An index of median rents in the US showed the first year-over-year decline since March 2020. Assuming the trend continues, the shelter component should contribute significantly less to the CPI number by this summer and fall.

The Federal Open Market Committee (FOMC) met on May 2-3 and announced another 25 basis point increase for the benchmark fed funds rate, bringing the target rate to the 5% to 5.25% range. In the official statement released after the meeting, the Fed importantly did not include the following sentence: “The Committee anticipates that some additional policy firming may be appropriate.” ⁹ We believe this omission is perhaps the clearest sign that the benchmark fed funds may have arrived at its terminal rate in this cycle. Assuming there is not a negative inflation surprise in the next few weeks, we would expect the Fed to “pause” at its June meeting and hold rates steady until inflation falls much closer to its 2% target.

While the economy has shown some signs of cooling in response to higher rates, the labor market has not. April’s job report showed a 253,000 gain in nonfarm payrolls, following a 165,000 increase in March. The unemployment rate fell to 3.4% in April from 3.5% in March, as 43,000 people left the work force and the number of unemployed Americans fell by 182,000. The three-month moving average of job growth in the US registered at 222,000, which shows hints of softening but not convincingly so.¹⁰

Looking ahead in May and early summer, the debt ceiling issue will likely figure prominently in the headlines. Market participants have largely come to expect a debate over raising the debt limit every few years or so, and many of the same warnings from Treasury officials and demands from political parties play out as they have in years past. It appears that the US will be able to meet obligations and debt payments for another month or two, which unfortunately for investors just extends the timeline that this story is likely to play out in the press. There have been some positive developments recently, with the House’s passage of the Limit, Save, Grow Act in late April¹¹ and a meeting between House leadership and President Biden in early May. While neither development is likely to result in a deal on the debt limit, they at least serve as a starting point for negotiations.

Sources

1.S&P Dow Jones Indices, Market Attributes US Equities

2.FDIC_ Failed Bank Information for First Republic Bank, San Francisco, CA.pdf

3.Resource Center _ U.S. Department of the Treasury.pdf

4.JPMorgan Chase Takes Over First Republic After FDIC Seizes Bank – WSJ.pdf

5.Gross Domestic Product, First Quarter 2023 (Advance Estimate) _ U.S. Bureau of Economic Analysis (BEA).pdf

6.https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_050523.pdf

7.https://finance.yahoo.com/news/analyzing-q1-bank-earnings-good-221610442.html

8.https://www.wsj.com/articles/us-inflation-april-2023-consumer-price-index-48f0eac5?mod=economy_lead_pos1

9.https://www.federalreserve.gov/newsevents/pressreleases/monetary20230503a.htm

10.https://www.wsj.com/articles/april-jobs-report-unemployment-rate-economy-growth-2023-a500d302

11.https://www.nytimes.com/2023/04/26/us/politics/debt-limit-vote-republicans.html

As of April 30, 2023

 

First Quarter 2023 | Fixed Income Commentary

Published on April 18th, 2023

The financial sector came under pressure in the first quarter following the failure of several U.S. banks.¹ While the prices of many stocks and preferred equity issued by banks were negatively impacted as a result, at present, we do not believe the issuers of the securities held in our client portfolios exhibit the same risk factors which contributed to the recent bank failures. In our view, these factors included significant exposure to cryptocurrency deposits, concentration of deposits in too few firms or sectors, high percentage of uninsured deposits, and securities portfolios with material unrealized losses in excess of the bank’s tangible equity capital.

Background

In simplified terms, when a bank takes in deposits, it can either make loans with those funds or invest them in fixed income securities, typically government or agency bonds. When a depositor withdraws cash from a bank, the bank can either sell a portion of its fixed income holdings or borrow from various sources to fund the withdrawal request. We believe several recent bank failures were characterized by very rapid and significant requests for withdrawals (a “run” on the bank) combined with the inability to quickly access cash to fund those withdrawals, without realizing substantial losses on banks’ securities portfolios.  

Silvergate

Silvergate developed the first digital currency payments network by an FDIC insured publicly traded bank in 2019.² Companies that utilized its payments network included the major crypto currency exchanges, and the exchange’s clients kept large deposits of digital currencies at the bank. Moreover, the top ten depositor firms by market share made up roughly 50% of total deposits.³ Silvergate appeared to have been troubled with declining deposit balances ever since the failure of FTX (a cryptocurrency exchange), which filed for bankruptcy in November 2022.⁴ In total, $8.1B of deposits (68% of total deposits) left the bank during the fourth quarter 2022,⁵ and on March 8, 2023 the bank announced that a voluntary winddown of operations was “the best path forward”.⁶

Silicon Valley Bank

SVB was a leading bank to the technology and venture capital community in Silicon Valley whose strong relationship with these companies contributed to its substantial deposit growth over the last several years, in our view.  In recent months, however, it appears the bank’s deposits declined at a rapid pace due to the high cash burn rate of their clients combined with a lesser amount of new venture funding for startups coming into the bank as new deposits.⁷ As a result, the bank had to sell a portion of its securities portfolio at depressed market values and “realize” losses of $1.8 billion.⁸ SVB had engaged Goldman Sachs to sell additional equity to help repair the balance sheet damage incurred from the realized losses, but quickly deteriorating market conditions eliminated that possibility.⁸  We believe the combination of this news, along with Silvergate’s downfall just days earlier, caused many depositors to have serious concerns about the financial stability of the bank, and many of them withdrew their funds at the same time, triggering a run on the bank.

In terms of overall credit quality, SVB was very well capitalized.⁸ The bank’s tier 1 capital ratio was in excess of 15% (well above the required minimum), the average loan-to-value (LTV) on the mortgage portfolio was low, and loans only made up 35% of total assets.⁸ Moreover, although SVB was a lender to the technology and venture capital industry, its overall exposure to the riskiest elements of this ecosystem was not high.⁸

In hindsight, we believe what investors overlooked at SVB was the concentration of its deposit base in one industry, venture-funded technology companies, whose secular trends exposed the bank to volatile and ultimately skittish depositor flows. While this alone may not have been enough to cause the bank to fail, when coupled with the high proportion of uninsured deposits, significant unrealized losses in the securities portfolio (large enough to wipe out the bank’s tangible equity capital), and the securities portfolio comprising a substantial portion of the bank’s total assets; taken together we believe these factors contributed to the bank’s overall failure.

Credit Suisse

We believe its Swiss National Bank-brokered combination with UBS helped limit contagion. Because Credit Suisse counterparties Greensill and Archegos failed in 2021,⁹ U.S. banks had time to reduce their counterparty exposure to the Swiss bank, in our view. The Fed stress tests also incorporate counterparty failures and suggest to us that this potential issue will not cross the Atlantic. The failure of Credit Suisse’s AT1 securities caught some investors by surprise, and a subsequent move to redeem AT1 securities by Deutsche Bank sparked a widening in the German bank’s CDS spreads and a selloff in its equity.¹⁰ Our strategy does not hold any European bank securities. 

Portfolio Review

In the wake of these recent bank failures, we have engaged in a detailed review of all the bank-issued securities we own in client accounts for similar risks: deposit concentration in too few sectors or firms, potential deposit flight from high levels of uninsured deposits, and potential unrealized losses embedded in securities portfolios that outweigh banks’ tangible equity capital. 

At present, we do not believe the banks to which we have exposure exhibit deposit concentration that could potentially be problematic; either via over-exposure to a single sector (like SVB) or via too few depositor firms (like Silvergate’s ten largest depositors). We believe the banks in which we have invested have a more diversified and stable deposit base.

We have also re-evaluated the portion of a bank’s deposits that are above the $250,000 FDIC guaranteed level. To us, this indicates the degree to which deposits could potentially be at risk of leaving the bank. Of the 25 largest U.S. Banks, SVB had the highest ratio of uninsured deposits to total deposits, at 88%. The bank with the second highest ratio of uninsured deposits to total deposits was First Republic, at 68%, which was a contributing factor towards our decision to sell the security. At present, we do not believe the other banks in which we are invested face a similar risk of losing deposits at a rapid pace. ¹¹

Taking the analysis further, we assessed the potential impact on each bank’s tangible equity capital if all unrealized losses in “held to maturity” categories of securities portfolios, which record securities at book values as opposed to market values, had to be realized. An analysis of banks we own shows that all except for SVB and Schwab would have sufficient tangible equity capital (a tangible common equity to assets ratio > ~3%) remaining if all securities were sold, and all unrealized losses (after-tax) were realized. ^11,12,13

For SVB and Schwab, tangible common equity ratios would fall to or slightly below zero in this situation.^11,12,13 While this could have been a contributing factor to SVB’s failure, we don’t believe Schwab is at risk of facing similar pressures at this time. To be in a situation where the entire securities portfolio may need to be sold, deposits would also need to rapidly decline, and access to enough liquidity would also not be available, in our view. In Schwab’s case, uninsured deposits make up less than 20% over all deposits, which to us indicates that the bank is not at high risk of facing rapid deposit decline.^12,13 We also believe Schwab has access to plenty of liquidity should the need arise. As Schwab’s CEO Walt Bettinger recently stated in the WSJ, “There would be a sufficient amount of liquidity… to cover if 100% of our bank’s deposits ran off,” “Without having to sell a single security.”¹⁴ Finally, unrealized losses in securities portfolios as of quarter-end 2022 have likely improved materially as Treasury yields have declined substantially since the crisis. ¹⁵

Subsequent to the bank failures in March, the Federal Reserve created a new liquidity facility (the Bank Term Funding Program or BTFP) which aims to help banks meet the needs of their depositors and help forestall any further bank liquidity problems.¹⁶ For the next 12 months, banks will be able to pledge their government bonds and agency mortgage-backed securities (regardless of the securities’ current market values) at the Federal Reserve and receive a loan back in return at the par-value amount of the securities.¹⁶ In other words, banks would not be forced to sell securities at depressed market values in times of stress, given the opportunity to borrow more than they are worth from the Fed. Banks also have access to additional liquidity sources such as the Federal Reserve’s discount window, as well as the Federal Home Loan Bank, where other types of collateral (besides treasuries and agency MBS) can be pledged.¹⁷

Outlook

While we do not foresee another bank failure impacting the portfolio at this time, we do believe bank profitability could face potential headwinds in the future. To retain customer deposits, banks may have to pay higher rates on deposits to prevent them from leaving and seeking higher returns. Banks may also reduce lending activity to hold more liquidity on hand just in case deposits were to decline. Moreover, should banks have to utilize additional sources of liquidity, they would have to pay interest on the borrowed funds to do so. Each of these factors could potentially reduce banks’ net interest margin, which is the difference between what banks earn on their assets vs. what they pay on their liabilities, and this could negatively affect their overall profitability.

Another area we are watching is the commercial real estate sector, specifically banks’ and life insurers’ loan exposure to office and retail properties. Higher interest rates and a shift to work-from-home trends that may permanently increase office vacancy levels could continue to pressure valuations of some commercial real estate. While this could have an impact on banks’ earnings or capital ratios in the future, for the US banks we own, we do not expect the impact to be material. In a stressed scenario that assumes a 21% default rate and 41% loss severity on office property loans and a 15% default rate and 42% loss severity on retail property loans, the annualized after-tax impact to banks’ capital ratios would be less than < 1%.¹⁸ For insurance companies, we believe the impact from deteriorating commercial real estate and CMBS fundamentals would also be manageable. Life Insurance companies’ commercial real estate loans are characterized by low LTV’s with long duration fixed rates and debt service coverage, on stabilized properties with very low overdue/default rates, and their CMBS exposure exists to highest rated CMBS tranches.¹⁸ In a draconian scenario that assumes office occupancy declines of 30% and default rates that reach 35%, investors in investment grade tranches of CMBS would generally be protected.¹⁸

We also continue to monitor the overall level of deposits in U.S. banks. Each week, the Federal Reserve releases reports which show the aggregate deposit levels for large and small/mid-sized banks have declined $411 billion since the first week of March.¹⁹ While this may seem like a large amount, it represents just ~2% of all U.S. banks’ deposits. Further, the largest banks may have been beneficiaries of the crisis because depositors believe they are too big to fail. The weekly Fed data shows a market share gain by the largest banks since the crisis even as total systemwide deposits have declined.¹⁹ In fact, Bloomberg reported that Bank of America collected $15 billion of deposits in the first week following the SVB and Signature failures.²⁰ Additionally, the $30 billion rescue of First Republic by the private sector suggests the cohort of large depositor banks have more than sufficient liquidity.²¹ We hold many securities of this cohort whose credit may have improved in the last month.  Weekly regional Federal Reserve data also confirms that the abundance of short-term borrowings have been concentrated in the New York and San Francisco Federal Reserve Banks.²² To us, this indicates that the crisis has not spread far beyond those areas where Silvergate, Silicon Valley and Signature Banks are located.

In terms of the overall economy, we expect the Federal Reserve to rely on incoming data to determine appropriate monetary policy moving forward. On one hand, consumer spending is still growing at an annual rate in the high single digits²³, the labor market is still strong²², corporate balance sheet fundamentals are solid²⁴, supply chains are recovering and credit losses at banks are still very low, implying that the economy is still in good shape.²⁵ On the other hand, we believe given the recent banking crisis, expectations for lending standards to tighten, and what appears to us to be a slew of recent weaker macroeconomic data that have missed expectations, the outlook for the economy and the Federal Reserve’s future actions may become more uncertain.

At present, we believe the portfolio is well positioned to withstand potential volatility from macro-economic uncertainties and any additional impacts from the crisis in the banking system. We will be scrutinizing first quarter earnings reports for uninsured deposit flows, the value of securities holdings, and any borrowings from emergency liquidity facilities. We will also be focused on the quality of CRE portfolios including delinquencies and credit reserves. We do not expect the banks we own to experience similar rapid deposit declines, and we believe the situation for any bank that needs quick access to liquidity has improved due to recent actions taken by the Federal Reserve in creating the BTFP. We continue to monitor the portfolio’s credit quality and interest rate sensitivity, as well as US banks’ deposit levels, exposure to commercial real estate and other metrics that could potentially impact any of our positions.

Sources

¹ https://www.spglobal.com/marketintelligence/en/news-insights/blog/snapshot-the-ripple-effects-of-2023-bank-failures

² https://ir.silvergate.com/news/news-details/2019/Silvergate-Announces-Closing-of-Initial-Public-Offering-of-Common-Stock/default.aspx

³ https://seekingalpha.com/article/4559549-silvergate-capital-depositors-at-the-gates

⁴ https://www.reuters.com/technology/silvergate-capitals-crypto-related-deposits-plunge-fourth-quarter-2023-01-05/

⁵ https://ir.silvergate.com/news/news-details/2023/Silvergate-Capital-Corporation-Announces-Intent-to-Wind-Down-Operations-and-Voluntarily-Liquidate-Silvergate-Bank/default.aspx

⁶ https://ir.silvergate.com/news/news-details/2023/Silvergate-Announces-Select-Preliminary-Fourth-Quarter-2022-Financial-Metrics-and-Provides-Business-Update/default.aspx

⁷ Q1-2023-Investor-Letter.FINAL-030823.pdf

⁸ Q1-2023-Mid-Quarter-Update-vFINAL3-030823 (1)

⁹ Credit Suisse, Burned By Archegos And Greensill Scandals, Shifts Focus To Wealth Management In Overhaul.pdf

¹⁰ Deutsche Bank shares slide after sudden spike in the cost of insuring against its default.pdf

¹¹ Barclays: “State of the Industry Spring 2023” Slides

¹² schwab_annual_report_2022.pdf

¹³ Calculations based on data from Schwab’s Consolidated Financial Statements as of 12/31/22

¹⁴   https://www.financialadvisoriq.com/c/3995094/511764/schwab_lose_bank_deposits_stay_open

¹⁵ Bloomberg USGG10YR Index.docx

¹⁶ Federal Reserve Board – Federal Reserve Board announces it will make available additional funding.pdf

¹⁷ https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/liquidity/pub-ch-liquidity-previous.pdf

¹⁸ JPM_Commercial_Real_Esta_2023-03-23_4367489.pdf

¹⁹ https://www.federalreserve.gov/releases/h8/current/h8.pdf (For the weeks ending March 08, 2023 – March 29, 2023)

²⁰ https://nypost.com/2023/03/15/bank-of-america-gets-15b-in-new-deposits-after-svb-collapse/

²¹ https://www.cnn.com/2023/03/16/investing/first-republic-bank/index.html

 ²² https://www.federalreserve.gov/releases/h41/current/default.htm

²³ https://www.bls.gov/opub/ted/2022/consumer-prices-for-food-up-7-9-percent-for-year-ended-february-2022.htm

²⁴ https://www.bls.gov/news.release/empsit.nr0.htm

²⁵ Global Supply Chain Pressure Index_ March 2022 Update – Liberty Street Economics.pdf

As of March 31, 2023

 

March 2023 | Equity Commentary

Published on April 11th, 2023

March’s financial news cycle was dominated by the high-profile failures of Silicon Valley Bank and Signature Bank New York on March 10, spanning through to March 19 when UBS announced it was buying beleaguered Credit Suisse for $3.2 billion in a deal brokered by Swiss authorities.¹ Apart from pronounced selling pressure across a handful of regional bank stocks, the equity markets were largely resilient to rising uncertainty over the health of the banking system. The S&P 500 and Nasdaq posted three consecutive weeks of gains beginning March 13, finishing the first quarter up +7.5% and +17.0%, respectively.², Outperformance of growth and technology stocks may have been a wager that the banking crisis would hinder economic growth later in the year, thereby raising the chances of easier monetary policy sooner than previously expected. In the fixed income markets, US Treasury bonds across nearly all durations rallied for the month, with the 10-year bond yield declining from 3.92% to 3.47%.³ The 2-year Treasury pulled back in the months’ final days to finish above 4%, which further widened the yield curve inversion.⁴

Historically, bank failures tend to be driven by credit risk, but Silicon Valley Bank (SVB) and Signature Bank New York (SBNY) were unique cases where large bases of undiversified, uninsured deposit liabilities were mismatched with fixed rate securities that had fallen in value as interest rates rose – eroding the banks’ capital. SVB and SBNY ran into major problems in 2022 when the venture capital/startup world saw funding evaporate and the cryptocurrency industry suffered major setbacks. This led many early-stage companies (clients of SVB) and crypto firms (clients of SBNY) to draw down cash reserves to continue funding operations, which eventually spiraled into a run-on deposits once the banks’ balance sheet problems were exposed.⁵

Credit Suisse’s forced sale a week later made it seem like a global bank contagion could be underway, but the Swiss lender had already been troubled for months if not years. The bank arguably collapsed under the weight of unstable management, investment banking losses, and a string of bad bets—including its partnership with now-bankrupt Greensill Capital and a $5 billion loss from the collapse of Archegos Capital Management. Last October, rumors of the banks’ problems on social media led to a major outflow of wealthy clients. In 2022, deposits fell more than 40%, and assets plummeted by 30%.⁶

In response to the SVB and SBNY failures, the Federal Reserve, U.S. Treasury, and Federal Deposit Insurance Corp. issued a joint statement declaring SVB and SBNY “systemic risks,” which opened the door for making all SVB and SBNY depositors whole—including those with deposits over the FDIC-insured $250,000 limit. The Fed also created a special emergency facility called the Bank Term Funding Program, which allowed banks to use debt securities like long duration US Treasuries as collateral for cash loans for up to a year—giving banks access to liquidity without having to sell securities at a loss.⁷

By the end of the month, news of a possible banking crisis had largely faded. In our view, tier 1 capital ratios and loan-to-deposit ratios suggest the US banking is very well-capitalized, and we would note that nearly all large banks have the ability to meet withdrawal requests without selling illiquid assets or fixed income assets at losses.⁸ In fact, many large banks actually benefitted from deposit flows in the weeks following the failures, as clients pulled cash from several regional banks.⁹ We think the relative stability of the broad US stock market last month underscores the underlying strength of the banking system.

From an economic standpoint, banks outside of the largest 25 account for 40% of all loan activity, and small banks in particular are responsible for 67% of all commercial real estate lending.¹⁰ The economic impact—including the possibility of recession—could hinge on changes to loan activity in the coming months. In a statement, Federal Reserve Chairman Jerome Powell acknowledged this possibility: “Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes. It is too soon to determine the extent of these effects, and therefore too soon to tell how monetary policy should respond.“¹¹

Perhaps in recognition of potentially adverse economic impact—as well as the possibility that higher rates could create more losses on bank balance sheets—the central bank limited its rate increase to only 25 basis points at the March 22 meeting. The Fed also released projections for the benchmark fed funds rate to settle around 5.1% by the end of the year, implying one more quarter-point increase this year.¹² Prior to the bank failures, we believe the Fed planned to forecast a higher year end rate at this meeting, and it was at least considering an acceleration in the pace of rate increases to 50 basis points.

Data suggests the US economy is moving in the direction the Fed wants, though probably not at the desired pace. Households increased spending by a seasonally adjusted 0.2% month-over-month in February, following a 2% month-over-month increase in January. Looking a bit more closely,¹³ the Commerce Department reported that spending at stores, online, and in restaurants dropped by 0.4% in February, signaling that consumers were pulling back even before the banking issues emerged.¹⁴ Job openings also fell in February, to 9.9 million from January’s 10.6 million. While this is down from the peak of 12 million job openings reached in March 2022, it still marks a sizable gap from the 5.9 million unemployed Americans seeking work.¹⁵

The Fed’s preferred core personal consumption-expenditures (PCE) price index rose 4.6% year-over-year in February, down from 4.7% in January. The producer price index also fell 0.1% in February from the prior month, a meaningful signal that price pressures are abating.¹⁶ Finally, the Fed also reported that M2 money supply declined by $130 billion in February and -2.4% year-over-year. This marks the fastest rate of decline in M2 since the 1930s, but it’s also true that it follows the historic surge of money supply in the wake of the pandemic. Even still, the sharp decline in M2 should eventually have an anchoring effect on inflation. That may help firm the case for the Fed to conclude its tightening campaign in fairly short order, which could be an important silver lining for investors following the spate of bank failures that brought new risks to the fore in recent weeks.¹⁷   

Sources

1.https://www.ubs.com/global/en/media/display-page-ndp/en-20230319-tree.html

2.Bloomberg: SPX Index and Nasdaq 1Q Performance

3.Bloomberg: USGG10YR Feb Mar Monthly Yield

4.https://home.treasury.gov/resource-center/data-chart-center/interest rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2023

5.https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/cwm/en/insights/eye-on-the-market/silicon-valley-bank-failure-jpmwm.pdf

6.https://www.wsj.com/articles/ubs-offers-1-billion-to-take-over-credit-suisse-bfac51fa?mod=djemRTE_h

7.https://www.wsj.com/articles/are-taxpayers-on-the-hook-for-svb-and-signature-bank-deposits-f9d22cf5?mod=hp_theme_svb-ribbon

8.https://www.fisherinvestments.com/en-us/insights/market-commentary/putting-the-regional-bank-scare-into-perspective

9.https://www.fisherinvestments.com/en-us/insights/market-commentary/the-early-deposit-and-loan-data-postsilicon-valley-bank-are-in

10.https://www.wsj.com/articles/banking-turmoil-tests-the-american-consumer-377d4c1b

11.https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-1b9b2bd1

12.https://www.wsj.com/articles/fed-raises-rates-but-nods-to-greater-uncertainty-after-banking-stress-6ae9316f

13.https://www.wsj.com/articles/consumer-spending-personal-income-inflation-february-2023-526279fe?mod=economy_lead_story

14.https://www.wsj.com/articles/us-economy-retail-sales-february-2023-6b98a40b?mod=djemRTE_h

15.https://www.wsj.com/articles/u-s-job-openings-dropped-in-february-d797e86b?mod=economy_lead_story

16.https://www.wsj.com/articles/us-economy-retail-sales-february-2023-6b98a40b?mod=djemRTE_h

17.https://www.reuters.com/markets/funds/us-money-supply-falling-fastest-rate-since-1930s-2023-03-29/

As of March 31, 2023

 

March Madness: Part Two – Bracket Busters

Published on March, 21st, 2023

After a tumultuous week that saw a California-based crypto-focused bank (Silvergate Bank) wind down its operations¹ as well as the seizure by U.S. regulators of two other banks (Silicon Valley Bank² and Signature Bank³), the following week many college basketball fans gathered to watch their teams play in the NCAA tournament.  At the same time that many fans saw their brackets implode as a result of surprise losses, investors in the banking sector experienced their own shock and disbelief as bank shares generally continued to decline.⁴  Concerns of both depositors and investors appear to remain elevated despite actions by the Treasury that it had hoped would stabilize the situation.⁵

At present, we believe bank investors may be asking the following questions:

• Will there be more bank runs necessitating government intervention or seizure?
• Could Credit Suisse – or another “too big to fail” institution – be among them?⁶
• Will banks somehow be forced to realize heretofore unrealized losses on bank balance sheets that will materially impair their shareholders equity?⁷
• Might many bank depositors grow so concerned that they shift their deposits to the largest banks?⁸
• Will the Federal Reserve continue to hike interest rates despite recent turmoil in the banking sector?⁹
• Do the recent bank seizures mean that smaller banks are going to see much more stringent regulations that will crimp their margins and ability to lend?¹⁰
• Is this episode going to cause a pullback in lending by smaller banks, slowing the U.S. economy enough to cause a recession?¹¹

At this point we cannot know if there will be additional bank failures.  We are monitoring a number of items to help us assess the situation.  Each week, the Fed shares information on its balance sheet, including bank borrowings at the Fed’s discount window, as well as usage of the new Bank Term Funding

Program the Fed created on March 12 to help provide funds to any banks needing them.¹²  Once things calm down, we would not expect to see much activity here.  We are also monitoring changes in the spread between the overnight lending rate set by central banks and the three-month interbank lending rate; this spread changes from minute to minute and over the past week it has been quite elevated.¹³  We believe its current level prices in a significant amount of fear and risk aversion; if this spread were to fall considerably, we would take it as a sign that concerns have eased. 

Moreover, in our view, bank stock prices can be a signal in themselves.  George Soros coined the term “reflexivity” to indicate the strange concept which is the opposite of what we believe to be true most of the time – that corporate fundamentals drive the price of a security.¹⁴  With reflexivity, a security’s price can drive fundamentals¹⁵ – in this case, a rapidly falling bank stock price might induce fear in depositors, adding to their concerns and convincing them that withdrawing their money and placing it in another bank is the right course of action.  This can become a vicious cycle, we believe, as more withdrawals may lead to a lower stock price, and so on.  Additional policy and/or funding announcements from the Federal Reserve may also act to change investor sentiment regarding the possibility of further bank problems. 

Our team has been delving into these issues ever since the FDIC seized control of Silicon Valley Bank.¹⁶  While the situation is still developing, it appears that over the weekend of March 18^th the Swiss government is encouraging UBS to take over all or parts of Credit Suisse (CS)¹⁷, which in our view may forestall further problems that might otherwise develop if CS was left to sink on its own.  It seems unlikely to us that CS would be allowed to fail, given that it is a global systemically important bank¹⁸ and we believe the Swiss central bank has the means and the will to save it.  If this transaction is agreed to, one significant ‘problem child’ of the last two weeks would be removed from the list of investor concerns, in our view.

We believe U.S. banking analysts over the past ten days have been laser focused on several metrics to assess the likelihood of additional problems arising in the banking system.  In our view these may include the average deposit size at a bank and whether it is above the FDIC’s $250,000 insured amount, and relatedly, the percentage of a bank’s deposits which exceed that amount, the “uninsured” deposits.¹⁹  With this information, analysts may seek to assess a given bank’s risk of having larger depositors potentially move their funds elsewhere due to concerns about being over the insured level. 

We believe analysts are also scrutinizing bank balance sheets to determine if their bond portfolios have experienced losses, and if so, how large those losses might be relative to shareholder equity.²⁰  Current accounting rules permit banks to hold bonds that have unrealized losses without negatively impacting equity, as long as those bonds are designated as “held to maturity.”²¹  By focusing on this measure, analysts may hope to determine the risk that if a bank is forced to sell bonds in order to meet depositor withdrawals, that it might have to realize these losses, and what the impact upon the bank’s equity might be.²²  If equity is wiped out by realized losses from selling bonds, a bank may become insolvent. We believe this was the situation that management of Silicon Valley Bank found themselves in when depositors rushed to withdraw huge amounts of deposits from the bank in a very short period.²³

It’s difficult to know in the aggregate how bank depositors have been reacting to recent events.  Banks are not required to report deposit levels daily, so over the course of the last week it is impossible to know – unless a particular bank decides to make a public disclosure²⁴ – whether that bank is seeing depositors take funds out, move funds in, or leave them be.  It seems likely to us that the largest banks have been seeing inflows, given that they are considered too big to fail.  In our view, the recent announcement by a group of the largest U.S. banks to shift $30 billion of their deposits to First Republic would seem to indicate that those banks may have experienced significant deposit inflows, and therefore were comfortable participating in efforts to help a peer recover from what may have been material deposit outflows.²⁵ 

We are concerned that smaller banks may see higher costs of funding, increased regulation, and potentially changes in how ratings agencies assess their level of credit risk.²⁶  Collectively these changes could cause headwinds for the U.S. economy, since smaller banks have been more significant engines for loan growth than larger banks.²⁷  As credit becomes more difficult to access at smaller banks, borrowers may seek loans from larger banks.  However, lending is a relationship business, and larger banks generally will not have the same relationships with these borrowers that their smaller bank lending officers did.  We believe this is likely to result, in the aggregate, in a decline in the extension of credit.²⁸ Offsetting this pressure to some degree, a lot of loans made in the U.S. economy come from non-bank institutions, such as insurance companies, private equity firms, and other alternative asset management firms.²⁹  In addition, we believe mortgage lending is less likely to be impacted by this particular issue, given the government’s involvement in purchasing conforming mortgages and packaging them into mortgage backed securities.³⁰

Could a decline in credit extended by smaller banks tip the economy into recession?  Many investors have been concerned about the possibility of a recession since the middle of 2022 when yield curves began to invert.³¹ We believe the recent bank failures increase the odds of recession. One offset is that the Fed is now more likely to be less aggressive with future interest rate hikes, and in fact the futures market is telling us at this time that investors now expect the Fed to cut rates as soon as June³².  Some of the prior rate hiking cycles saw the Fed hike into a serious problem or crisis, and as a result the Fed paused and sometimes reversed, and this succession of events did not result in a recession for many years into the future.³³ 

Martin Zweig, the respected investor and market forecaster, coined the phrase “Don’t Fight the Fed” in 1970³⁴, explaining his view that Federal Reserve policy can drive the market’s direction.  If we are indeed approaching a point where the Fed will be cutting interest rates to offset a recession or period of slower growth, then we may also be approaching a point where investors might feel more comfortable about investing in the stock market.

Source

¹https://ir.silvergate.com/news/news-details/2023/Silvergate-Capital-Corporation-Announces-Intent-to-Wind-Down-Operations-and-Voluntarily-Liquidate-Silvergate-Bank/default.aspx

²https://www.fdic.gov/news/press-releases/2023/pr23016.html

³https://www.fdic.gov/news/press-releases/2023/pr23018.html

⁴Bloomberg. S&P 500 Banks declined 11.2% over the 5 days ended March 17, 2023. See Figure 1.

⁵https://home.treasury.gov/news/press-releases/jy1337

⁶https://www.snb.ch/en/mmr/reference/pre_20230315/source/pre_20230315.en.pdf

⁷https://www.fdic.gov/news/speeches/2023/spmar0623.html The total amount of unrealized losses on bank balance sheets was $620 billion as of December 31, 2022.

⁸https://www.bloomberg.com/news/articles/2023-03-15/bofa-gets-more-than-15-billion-in-deposits-after-svb-failure

⁹https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html As of March 17, Fed Funds futures markets are pricing in a 62% chance of an interest rate increase at the Fed’s next meeting on March 22, 2023. See Figure 2.

¹⁰https://www.nytimes.com/2023/03/15/business/economy/silicon-valley-bank-federal-reserve-regulation.html

¹¹https://www.nytimes.com/2023/03/17/business/economy/economy-banks-recession.html

¹²https://www.federalreserve.gov/releases/h41/20230316/ Federal Reserve Statistical Release H.4.1 showed that, as of March 15, 2023, there were $12 billion of BFTP loans and $153 billion of discount window loans on its balance sheet. There were also $143 billion of other credit extensions to banks in FDIC receivership.

¹³Bloomberg. The Forward Rate Agreement-Overnight Index Swap spread was 0.47% on March 17, up from 0.03% on March 8. Its five-year average is 0.22%. See Figure 4.

¹⁴“The Alchemy of Finance” by George Soros. pp. 2-3. “The Concept of Reflexivity.” Wiley. 1987.

¹⁵“The Alchemy of Finance” by George Soros. pp. 2-3. “The Concept of Reflexivity.” Wiley. 1987.

¹⁶https://www.fdic.gov/news/press-releases/2023/pr23016.html

¹⁷https://www.wsj.com/articles/ubs-in-talks-to-take-over-credit-suisse-ed932b01

¹⁸https://www.fsb.org/2022/11/2022-list-of-global-systemically-important-banks-g-sibs/

¹⁹https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/svb-signature-racked-up-some-high-rates-of-uninsured-deposits-74747639

²⁰https://www.ft.com/content/dff4e577-9282-450c-9ae4-58d6572123e5

²¹https://www.wsj.com/livecoverage/stock-market-news-today-01-05-2023/card/when-held-to-maturity-isn-t-and-why-that-matters-to-silvergate-M3iuQ83zpMGeZLYKQnRv

²²https://www.ft.com/content/dff4e577-9282-450c-9ae4-58d6572123e5

²³https://www.wsj.com/articles/bank-collapse-crisis-timeline-724f6458

²⁴https://www.bloomberg.com/news/articles/2023-03-15/bofa-gets-more-than-15-billion-in-deposits-after-svb-failure

²⁵https://ir.firstrepublic.com/static-files/18c04dea-0d44-43ed-b420-b066d56e1f54

²⁶https://www.nytimes.com/2023/03/15/business/economy/silicon-valley-bank-federal-reserve-regulation.html

²⁷https://www.goldmansachs.com/insights/pages/stress-among-small-banks-is-likely-to-slow-the-us-economy.html

²⁸https://www.goldmansachs.com/insights/pages/stress-among-small-banks-is-likely-to-slow-the-us-economy.html

²⁹https://www.federalreserve.gov/newsevents/speech/barr20221201a.htm Nonbank financial intermediaries, broadly defined, fund nearly 60% of the credit to the U.S. economy.

³⁰https://www.fhfa.gov/about-fannie-mae-freddie-mac

³¹https://www.barrons.com/articles/yield-curve-inversion-bonds-a483aaed

³²Bloomberg – see Figure 3 below

³³Evercore ISI. Weekly Economic Report. March 12, 2023. See Figure 5.

³⁴https://requisitecm.com/pdf/dont-fight-the-fed.pdf

Figure 1 

   

Figure 2

Figure 3

Figure 4

Figure 5

As of March 21, 2023

 

February 2023 | Equity Commentary

Published on March, 16th, 2023

The ‘economic good news is bad news’ trade was on in February, with the S&P 500 falling 2.5% for the month. The 10-year US Treasury bond yield rose from 3.5% to 3.9%, essentially reversing January’s move.¹ During the month, we believe inflation readings appeared hotter than financial markets may have expected, and the economy showed few signs of weakening substantially.  This occurred in the backdrop of the Fed having slowed the pace of rate hikes from four consecutive 75bp hikes in June, July, September, and November, to 50bps in December and 25bps in early February.² In testimony before the Senate Banking Committee on March 7, Chairman Jerome Powell said “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” noting that recent data appeared to mark a reversal in the prior trend of cooling inflation. Interest rates futures markets continue to bid up expectations for the benchmark fed funds rate in 2023. At the last Fed meeting, market expectations were for peak fed funds of 4.9% in May, falling thereafter to a year-end level of 4.3%. By March 6, investors were forecasting a peak rate of 5.5% in September, declining only modestly by year end to 5.4%.³

Inflation data released in February did not offer much encouragement to the Federal Reserve, in our opinion. The Fed’s preferred measure of inflation – the Personal Consumption Expenditures (PCE) price index – increased by 5.4% year-over-year in January, which was slightly worse than December’s 5.3% print.⁴ The Consumer Price Index (CPI) and the Producer Price Index (PPI) continued to show improvements year-over-year, but the pace of deceleration slowed – a point we believe is not lost on market watchers and the Fed. 

The Labor Department reported a 6.4% year-over-year CPI increase in January, which marked only a very modest improvement from December’s 6.5% rate of increase. More worrisome to us was the month-over-month change in CPI, which at 0.5% from December to January was a significant move higher than the previous month’s 0.1% increase. Core prices, which exclude energy and food, were up 5.6% year-over-year, again only a slight improvement from December’s 5.7% year-over-year increase.⁵ Much like January’s CPI report, the January’s PPI improved year-over-year compared to December, but the 0.7% month-over-month from December to January was a sharp reversal from December’s -0.2% decline from November.⁶

We believe the divergence between goods and services continues to be the key sticking point in today’s inflation story. Core goods prices have stabilized while shelter costs (a key component of services) rose at their fastest annual pace since 1982.⁷This inflationary pressure is a byproduct of continued strength in the labor market, coupled with consumers increasingly shifting their spending from goods to services. Consumers spent more in restaurants, bars, and hospitality in January, helping drive a 3% increase in retail sales from December to January – the biggest monthly jump in almost two years.⁸

Energy’s contribution to inflationary pressures also remains high on our watchlist, particularly as the war in Ukraine continues. In response to Western oil sanctions, Russia announced it would cut oil production by 5% in March.⁹ In our view, this move should not impact global oil prices very much, but it does appear to signal Russia’s willingness to potentially disrupt global energy markets.

Regarding the outlook for services inflation, the US labor market continues to look largely unresponsive to Fed rate hikes, in our opinion. Nonfarm unemployment jumped by 517,000 in January, which blew past consensus expectations for a roughly 200,000 increase¹⁰. Initial jobless claims – a proxy for layoffs – were also seen ticking slightly lower in the last week of February, which suggests to us, that employers continue to desperately cling to workers. First-time applications for unemployment benefits fell to 183,000, the lowest reported level since April 2022, and unemployment rate fell to 3.4%, a 53-year low.¹¹ One bright spot for the inflation picture is that average hourly earnings rose 4.4% year-over-year in January, which marked the smallest increase since August 2021.¹²

Economic data in services and manufacturing remains mixed, in our view. In February, S&P Global’s index of services businesses rose to 52.1 pushing it back into expansion territory and marking the strongest reading in eight months. U.S. companies that participate in the surveys reported their first growth in output since last summer and indicated optimism about activity in the months ahead.¹³ 

S&P Global’s February manufacturing index reading rose to 47.3 from 46. in January. While still contractionary, the improvement suggests that activity is contracting at a slower pace, and manufacturers indicated that softer demand has allowed them to work through the backlogs that remain a legacy of the pandemic ISM’s survey also showed contraction.¹⁴ Businesses said they were slowing output in anticipation of weak demand in the first half of 2023, but that expectations were in place for a growth pickup in the second half. A key data point, in our view, from the survey was that the index for input prices moved above 50 for the first time since September, a cautionary sign that price pressures could be creeping higher again.¹⁵

Sources

¹Bloomberg. SPX 500 Index DES. USGG10YR GP Function

²United States Fed Funds Rate – 2023 Data – 1791-2022 Historical – 2024 Forecast

³Bloomberg: Implied Overnight Rate & Number of Hikes/Cuts 12/14/22 and 3/6/23

⁴Personal Income and Outlays, January 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf

⁵https://www.bls.gov/cpi/

⁶Producer Price Index News Release summary – 2023 M01 Results.pdf

⁷https://www.nbcnews.com/business/economy/inflation-rate-january-2023-what-it-means-will-interest-rates-go-up-rcna70401

⁸U.S. retail sales roar back; manufacturing shows improvement _ Reuters.pdf

⁹Russia to cut oil output by 500,000 bpd in March _ Reuters.pdf

¹⁰https://www.cnbc.com/2023/02/03/jobs-report-january-2023-.html

¹¹https://www.wsj.com/articles/january-jobs-report-unemployment-rate-economy-growth-2023-11675374490

¹²https://tradingeconomics.com/united-states/average-hourly-earnings-yoy#:~:text=2%2DYear%20Low-,Average%20hourly%20earnings%20for%20all%20employees%20on%20US%20private%20nonfarm,earnings%20since%20August%20of%202021

¹³Global economic growth accelerates to eight-month high in February _ S&P Global.pdf

¹⁴https://www.pmi.spglobal.com/Public/Home/PressRelease/f982d001dbbe4b4daec4f54d2260874e

¹⁵February 2023 Manufacturing ISM® Report On Business®.pdf

As of March 16, 2023

 

March Madness

Published on March, 13th, 2023

A series of events last week culminated in the United States Treasury announcing over the weekend that it would take steps to stabilize the banking industry.  These actions included providing access to all depositor funds at two banks which were shut down by regulators, as well as a new funding vehicle to guarantee that all banks have access to liquid funds should the need arise in order to meet withdrawal requests by customers.  The pace at which these events have unfolded is concerning, but we believe these actions by the Treasury should stabilize the banking system and prevent further panic by bank customers.  However, there may be some additional issues which arise in the industry as the full implications of this episode become clearer in the coming days and weeks.

Last week, on March 8^th, the holding company for Silvergate Bank announced that Silvergate would close down and liquidate its operations.  Silvergate was a California-based bank unknown to most Americans that went public in late 2019.¹  The bank described itself as the leading provider of innovative financial infrastructure solutions and services to participants in the nascent and expanding digital currency industry.²  Silvergate also built and operated a 24 x 7 currency exchange where cryptocurrency traders could buy and sell digital currency instantaneously.³  As a result, a large proportion of the bank’s depositors were cryptocurrency traders.⁴

The downfall of Silvergate may have been catalyzed in part by the November 11 collapse and bankruptcy of the FTX cryptocurrency exchange, the details of which are still being analyzed and uncovered.  As a result of the FTX bankruptcy, cryptocurrency investors may have grown more cautious about the creditworthiness of the various entities operating in the crypto world.¹ We believe that as Silvergate’s depositors began to withdraw more and more of their funds, this eventually began to put pressure on the bank’s balance sheet.  (This is referred to as a “run” on the bank.)

In a simple model of a bank’s balance sheet, the bank takes in deposits from customers and uses those deposits to make loans as well as to invest in safe fixed income securities, usually government bonds.   Typically, these bonds are divided into two categories, one of which is very short term and used for funding customer withdrawals, while the other can be thought of as longer term that might be held to maturity.⁵ 

If more withdrawals are requested of the bank than can be funded by the short-term category, the bank must then start to sell bonds from the long-term category.  If those long-term bonds are priced at a loss because interest rates have increased, the bank must realize that loss by selling in order to provide funds back to the customers who are withdrawing their cash.  However, if these realized losses are large enough relative to the net worth of the bank, the bank may end up in trouble.⁵  On March 8^th, this situation appears to have developed at Silvergate Bank.

The very next day (Thursday), Silicon Valley Bank, whose parent is bank holding company SVB Financial Group, also suffered a run by depositors, and its stock price fell by 60%.⁶  That bank’s shares never reopened for trading on Friday and it was seized by the FDIC.⁶ SVB was a somewhat unique bank in that its deposits were largely from start-up companies, many of which had not yet done an IPO.⁷  SVB was also far larger than Silvergate, with total assets at year end of $212 billion compared to Silvergate’s $11 billion.  According to company SEC filings, of SVB’s year-end deposits of $173 billion, just $74 billion were used to fund loans, while the remainder were largely invested in government bonds. 

Just as was the case with Silvergate, SVB’s depositors apparently began to worry about the health of the bank, and many rushed to withdraw their funds.  Ultimately SVB was in a situation where it began to realize losses on its bond portfolio which exceeded the bank’s equity,⁶ which seems to be why it was seized by the FDIC on Friday March 10.  Another bank said to have exposure to crytpocurrency, Signature Bank, was closed down on Sunday by New York state regulators.  Signature Bank had year-end total assets of $110 billion.

The unusual aspect as we see it to the seizures of SVB and Signature Bank is that both banks are apparently not facing problems with bad credit or delinquencies.  Rather, they seemingly faced issues of liquidity and access to capital to shore up their balance sheets in the short term.  We think that is what makes this episode so different, say, than the 2008 financial crisis where there were bad loans that ultimately destroyed the equity capital of many banks in the U.S.⁸  What we saw last week was not a credit problem. We believe that, in general, bank assets are creditworthy, and banks are well capitalized. Many rules promulgated since the 2008 financial crisis have required this, and the Fed conducts annual stress tests on the largest U.S. banks to ensure it.⁹ In our view, those tests were very tough in recent years, and all large U.S. banks passed them.

We believe that the bank seizures, as well as the winding down of Silvergate, can be at least in part tied to the Federal Reserve’s interest rate hikes which began in March 2022 as part of the Fed’s efforts to fight inflation, as well as the reversal of its quantitative easing program, called quantitative tightening.  In past rate hiking cycles, we have often seen that “something breaks” and the Fed has to stop. Examples that we think about include Long-Term Capital Management (1998) and Continental Illinois (1984).

On Sunday March 12, the United States Treasury announced that all depositors of SVB and Signature would be able to access all their funds on Monday. This includes all deposits, even those exceeding the FDIC insured limit of $250,000 per depositor. The Federal Reserve also announced a new Bank Term Funding Program that will lend against Treasury and agency securities at par for up to one year, providing another resource for banks to meet depositor requests for funds should the need arise, in addition to the discount window. For now, we believe these actions are likely to limit further contagion and fears about the health of the U.S. banking industry. That said, it is possible that other factors like rising deposit costs that result from this episode could continue to weigh on at least some banks going forward.

 

Source

¹https://en.wikipedia.org/wiki/Silvergate_Bank

²https://www.silvergate.com/about-us

³https://www.reuters.com/technology/crypto-focused-bank-silvergate-plans-wind-down-operations-2023-03-08/

⁴https://www.forbes.com/sites/digital-assets/2023/03/02/crypto-bank-silvergate-sees-client-exodus-as-delayed-annual-report-puts-future-in-question/?sh=ceaf9175a197

⁵https://www.imf.org/external/pubs/ft/fandd/2012/03/basics.htm#:~:text=Although%20banks%20do%20many%20things,whom%20the%20bank%20lends%20money).

⁶https://www.wsj.com/articles/silicon-valley-bank-svb-financial-what-is-happening-299e9b65

⁷https://s201.q4cdn.com/589201576/files/doc_financials/2022/q4/Q4_2022_IR_Presentation_vFINAL.pdf

⁸https://www.fdic.gov/bank/historical/crisis/overview.pdf

⁹https://www.federalreserve.gov/publications/comprehensive-capital-analysis-and-review-questions-and-anwers.htm

As of March 13, 2023