📈Is The Bank Run Over?

Last week Silicon Valley Bank (SIVB) issued a statement that they would miss 2023 outlook and needed to raise $2 billion dollars in equity. The stock gapped down 30% at the open. By the end of the day it became apparent the situation was worse than they disclosed. Twenty four hours later the FDIC shut the bank down and halted the stock. Depositors went to the bank forming long lines to get access to their money. Over the weekend Signature bank (SBNY) was shut down by FDIC. Now the good news is that the FDIC has said they are going to make whole the deposits. There are enough assets and liabilities currently at both banks. The more troubling news is SBNY gave no warning at all that there were any issues. It was weak as were all the regional banks but no signal as Silicon Valley bank. First Republic CEO issued a statement that he was concerned and fielding a lot of calls. To start with anything over $250,000 is not insured. The FDIC did step up and secure 100% of deposits in both instances but that is not assurance they will do it again. During the great financial crisis the government did everything it could to make sure investment banks did not fail. It negotiated terms and cut sweetheart deals such as making Goldman sacs and J.P. Morgan commercial banks. It also left others in the wind such as Lehman Bros. People have a short memory unless it involves money. Any CFO with a large balance at a regional bank is now on high alert. Money can be moved in the blink of an eye. Silicon Valley Bank (SIVB) had $42 billion withdrawn in 24 hours. Below is a list in percentage order of loss exposure. This loss in mostly in long term debt. Note Schwab (SCHW) is at 171% and JPM is at 12% . Credit to SP500 market intelligence for the graphs.

The cutoff of $250,000 on FDIC insurance is the issue. The banks with the lowest percentage of deposits under $250,000 are the most vulnerable to having a mass exodus. These are located at the lower right of the graph below. Two of the bottom five have now been shut down (SBNY SIVB). By example JPM has more deposit accounts under $250,000 on a percentage basis than all of the bottom 5 combined.

While we do not know how this ends we do know that people develop a herd mentality. VC funds told their portfolio of companies to pull money out of SIVB. Now maybe it stops because FDIC is acting aggressively also maybe it does not. Most likely it will be a middle ground but the smaller regional will lose market share to the large corporate juggernaut banks.

To learn what stocks have the most downside and which ones benefit in the current environment watch the video below. Pay close attention to SBNY and JPM.

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Wishing Everyone Massive Success in 2023 🍾