It's been reported [1] (no paywall [2]) that executives were aware of the risk and continued to purchase higher yielding assets in spite of internal protests.
The actions are borderline criminal. To avoid a $36M hit they literally bet the bank. This was a step beyond regular incompetent mismanagement.
From the article:
In late 2020, the firm’s asset-liability committee received an internal recommendation to buy shorter-term bonds as more deposits flowed in, according to documents viewed by Bloomberg. That shift would reduce the risk of sizable losses if interest rates quickly rose. But it would have a cost: an estimated $18 million reduction in earnings, with a $36 million hit going forward from there.
Executives balked. Instead, the company continued to plow cash into higher-yielding assets. That helped profit jump 52% to a record in 2021 and helped the firm’s valuation soar past $40 billion. But as rates soared in 2022, the firm racked up more than $16 billion of unrealized losses on its bond holdings.
Throughout last year, some employees pleaded to reposition the company’s balance sheet into shorter duration bonds. The asks were repeatedly rejected, according to a person familiar with the conversations. The firm did start to put on some hedges and sell assets late last year, but the moves proved too late.
I went back and edited a few of my posts specifically mentioning your post and the article you cited to clarify the record of discussion.
I agree that it is important to argue I good faith and help each other sharpen our views. Thank you for providing an important resource in the discussion.
While I still feel the instinct for vengeance or rage at SVB is counterproductive given that you showed evidence that the leadership of SVB knowingly, willfully, and with reckless disregard for the consequences, decided to invest in more long term securities than they were advised by their own team does justify some of that instinct.
That being said I still feel the system worked as expected. I think, given human nature as on display with SVB, the regulatory environment should go back to the stronger standard but I also think getting bank failures to 0 isn’t a laudable goal. Some failures will happen and as long as we eliminate the motivation for a run on the bank the system should allow for a degree of risk and failure.
Yes, same here, thanks. It’s crazy they were so forewarned and yet did nothing, even having lived through the GFC and knowing how quickly things can go sideways. Just 15yrs and they already forgot, /smh.
The actions are borderline criminal. To avoid a $36M hit they literally bet the bank. This was a step beyond regular incompetent mismanagement.
From the article:
[1] https://www.bloomberg.com/news/articles/2023-03-13/svb-failu...[2] https://archive.is/HqVWn