Click here for the PDF: The Weekly Beacon – March 17 2023

We will be giving some macro economic market updates on a weekly basis. No equity recommendations will be given in this commentary, and we encourage you to contact us if you have questions regarding any observations.

Feel free to send in your pictures of lighthouses to be featured in our weekly commentary.

This weeks issue: Silicon Valley Bank, Banking Sector, Banking Default, Government backs depositors, Shareholders, Venture Capitalists, Bill Ackman, David Sacks, Bailouts, 2023 Banks versus 2008 Banks, FED Funds Rate, Capital Requirements, Bank Run, FDIC, Insured deposits versus Uninsured deposits, U.S. Regional Banks, Bank ETFs, Signature Bank, Coinbase, FED Meeting Forecasts, FED Policy, Goldman Sachs Rate Forecast, Jim Cramer, Forbes, Ken Griffin, Citadel Securities, Hedge Funds, CPI, Inflation, Producer Prices, SVB Bounces Back, Saudi National Bank, Credit Suisse, Swiss National Bank.



Silicon Valley Bank (SVB) defaults

We are sure you heard about Silicon Valley Bank this week. The bank which traded on the Nasdaq under the ticker SIVB was the news story of the week and perhaps the year. This will take a bit to explain so buckle up.

Silicon Valley Bank was founded in 1983 and IPO’d in 1987. Last Friday the FIDC announced that it had taken over the bank and assets would be sold to cover depositors. This is the largest bank failure since the Financial Crisis and 2nd largest U.S. bank failure.

SVB shares dropped 65% last Thursday:

Shares traded at $41 before they were halted in pre-market trading early Friday. SVB’s market cap was $30 billion just a year ago and $17 billion as of March 1st.

SVB had over $209 billion in customer deposits at the time of its failure. Washington Mutual which failed in 2008 was the only bank larger on record to fail with roughly $309 billion in assets.

First, we need to explore what a bank does (and how they earn money).

Banks are supposed to take your money, pay a rate to you then loan out your money at a higher rate than the one they pay you. The spread is their profit and a major stream of revenue for most banks. They also earn revenue through service fees and advisory fees and other fees.

So, before we get into why SVB failed and what has happened since let us get into who they are.

SVB is a bank that operates in the financial services industry. At the time of its failure, it was the 16th largest bank in the U.S.

SVB’s headquarters are in Silicon Valley and its focus is providing services to start-ups. Since its founding, they believed the start-up world had been underserved and mismanaged in terms of loans. Start-ups usually do not earn revenue in the early days despite their need for capital. SVB helped structure loans that solved this industry’s………………