The tweets started on Jan. 18, the day before SVB reported earnings, when Martin’s account posted a prescient thread that began: “Investors have rightfully been fixated on $SIVB’s large exposure to the stressed venture world, with the stock down a lot. However, dig just a little deeper, and you will find a much bigger set of problems at $SIVB.” . . .
When the bank experienced an increase in withdrawals from depositors this year, deep losses on sales of some securities created a hole in the balance sheet that triggered its spectacular failure in just two days this week, as a run on the bank erupted among its clientele of mostly young tech companies.
Martin said he initially started analyzing SVB out of suspicion that he’d find weakness in its book of loans to Silicon Valley startups. Instead, he realized how vulnerable the firm’s fixed-income investments had left it following a year of deep losses in the bond market.
“They had bought all these mortgages at the top of the market and were sitting on a massive unrealized loss,” he said in an interview. “And it was sitting there in plain sight. There were a number of other banks and insurance companies with similar issues, but I haven’t seen anyone anywhere near the scale of Silicon Valley Bank.”
Losses on the asset side of the bank’s balance sheet were more alarming in light of signs of trouble on the liabilities side: Its deposits were at risk of disappearing amid a cold snap in the once red-hot world of startups. Many of SVB’s customers were now burning cash rather than raising fresh funds thanks to the largess of the VC industry.
I imagine he made quite a lot on his short.
However, insiders complained as the bank grew at breakneck speed, its top management became inordinately focused on social issues and overly reliant on the use of expensive consultants to explore new strategies, when they should have prioritised management of the bank’s expansion and properly hedging against its interest rate risk. “It felt like a lot of decision makers were relying on consultants in order to make decisions,” said a former executive, citing SVB’s relationships with consulting groups such as McKinsey. “It felt like a lot of overengineering to get to [answers] that people ought to have figured out on their own.” SVB executives were also deeply committed to social justice, according to several of its ex-employees. “I almost felt like I was at work on a college campus,” said another former executive, who recalled weekly internal “TED talks” on social issues and classes on “how to make sure you were not committing a microaggression”.
Get woke, go broke.
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