Bank Stocks Plummet as Bank Runs in the U.S. Gain Momentum at Federally-Insured, Non-Traditional Banks

[Gunnar Larson]

https://wallstreetonparade.com/2023/03/bank-stocks-plummet-as-bank-runs-in-the-u-s-gain-momentum-at-federally-insured-non-traditional-banks/


By Pam Martens and Russ Martens: March 10, 2023 ~

Frightened Wall Street TraderIf you keep a diary or news journal, be sure
to write down March 9, 2023 as the day that a full-blown bank run began at
non-traditional banks in the U.S.

Bank depositors were already nervous after federally-insured Silvergate
Bank (ticker SI) announced on Wednesday evening that it was closing and
liquidating. Its publicly-traded stock had already lost over 90 percent of
its market value over the prior 12 months at that point.

Silvergate had made the fatal decision several years ago to become the
go-to bank for crypto companies, including scandalized Sam Bankman-Fried’s
collapsed house of frauds, FTX and Alameda Research. As details of its
questionable activities related to Bankman-Fried’s enterprises emerged, 68
percent of its deposits related to crypto companies took flight in just the
last quarter of 2022. After Silvergate confirmed in an SEC filing on March
1 that an investigation of its conduct was underway at the U.S. Department
of Justice, and that it had doubts about its ability to continue as a going
concern, its fate was sealed.

Now, for the second time in less than two weeks, depositors are panicking
over the fate of another federally-insured bank. This time it’s Silicon
Valley Bank (ticker for holding company is SIVB) which, like Silvergate
Bank, had become a go-to bank for a special niche customer. Instead of
crypto, its niche was venture capital outfits and private equity firms.

Silicon Valley Bank is not a small bank. According to its regulatory
filings, as of December 31 it held $161.4 billion in domestic deposits and
$13.9 billion in foreign deposits.

The bank panicked investors and depositors alike on Wednesday when it said
it would issue $2.25 billion more in stock (thus diluting other
stockholders) and that it had taken a $1.8 billion loss on substantially
all of its available-for-sale bonds. The stock price reacted by plummeting
yesterday, closing down 60.41 percent in one trading session. In premarket
trading this morning, the shares were down another 40 percent at one point.

As for the potential for a continuance of a depositor run this morning, the
bank is likely feeling the pain from the following paragraph that appeared
in the Wall Street Journal last night:

“Garry Tan, president of the startup incubator Y Combinator, posted this
internal message to founders in the program: ‘We have no specific knowledge
of what’s happening at SVB. But anytime you hear problems of solvency in
any bank, and it can be deemed credible, you should take it seriously and
prioritize the interests of your startup by not exposing yourself to more
than $250K of exposure there. As always, your startup dies when you run out
of money for whatever reason.’ ”

The figure, $250,000, refers to the amount of federal deposit insurance per
depositor, per insured bank.

Unfortunately, the bank panic spread quickly yesterday to other banks –
both large and small. PacWest Bancorp (ticker PACW) lost 25.45 percent of
its market value by the closing bell yesterday while First Republic Bank
(ticker FRC) fell by 16.51 percent. Mega banks on Wall Street were also not
immune to the fallout: Bank of America (ticker BAC) lost 6.20 percent while
the largest bank in the U.S., JPMorgan Chase (ticker JPM) – which is also
battling lawsuits and escalating press about its ties to deceased child sex
trafficker Jeffrey Epstein – fell by 5.41 percent.

The Federal Deposit Insurance Corporation (FDIC), whose Deposit Insurance
Fund (DIF), has to make good on deposits at insured U.S. banks in the event
of a bank failure, noted in February that unrealized losses at U.S. banks
for bond holdings totaled $620 billion at the end of the fourth quarter of
last year. When interest rates rise, as they have dramatically over the
past year, the current market value of bonds issued at lower locked-in
interest rates fall. That is typically not a problem for banks – unless
there is a stampede by depositors to get their money out of the bank and
the bank is forced to sell the bonds at a loss to raise liquidity.
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