Markets are in a state of panic. A small regional bank – Silicon Valley Bank – suffered a bank run this week. Over $42B was withdrawn in the space of just two days. What happened? On the surface it looks like very poor risk management – where SVB was effectively forced to sell long-term bonds which were underwater. Call it a margin call. Their interest rate risk was not adequately hedged. More details will come out in the coming days… however this sell off is taking the entire sector down with it. Is it warranted?
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First Major Casualty
This week saw the second largest banking collapse in US history and the first since 2008. Silicon Valley Bank – with a market cap of $18B only 4 weeks ago – collapsed Friday after a furious bank run. SVB’s collapse was far less to do with the Fed raising rates – it was all to do with poor risk management – forced to sell their holding of treasuries at a loss. But this is nothing we have not seen before….
Equities Often Slow to Connect the Dots
Last week I warned the market was poised for a sharp pullback. This week we got it. In short, both fundamentally and technically the market felt vulnerable. Market multiples pushed 19x forward on little substance. And from there, it did not take much for the bulls to lose their nerve…