After last week's shocking collapse of the tech and start-up bank SVB Financial (SIVB.Q -1.96%), the parent company of Silicon Valley Bank, bank stocks have sold off broadly, with a lot of pain among regional lenders.
On Monday, bank stocks like First Republic (FRCB), Western Alliance Bancorporation (WAL 3.05%), and PacWest Bancorp (PACW) were taking a beating. At one point, First Republic had been down roughly 78%, Western Alliance had been down 84%, and PacWest more than 58%, although they've traded with a lot of volatility as of late.
Investors are worried about things like large unrealized losses in bond portfolios, deposit runs, and uninsured deposits, among many other factors. But are any of these banks actually like SVB? Here's what we know.
Stacking them up against SVB
To make a long story short, SVB Financial collapsed because the bank experienced heavy deposit outflows and was sitting on large unrealized losses in its available-for-sale (AFS) and held-to-maturity (HTM) bond portfolios.
Banks get to choose how they classify the bonds they purchase. Bonds in AFS are those that a bank intends to sell before maturity. These are marked-to-market and therefore detract or add to a bank's tangible book value, or net worth, each quarter. HTM bonds are those that a bank intends to hold to maturity and once a bond is classified as HTM it's pretty rare to move it back to AFS. HTM bonds are not marked-to-market but once a bank has to dip into this portfolio for liquidity reasons like what SVB had to do, the whole portfolio must be marked down. The whole goal of this accounting system is to let banks keep some bonds more liquid and hold some to maturity without impacting their equity.
Losses in SVB's bond portfolios were enough to wipe out all of the bank's tangible common equity. Both AFS and HTM bond losses are all unrealized and therefore just paper losses until a bank actually needs to sell the bonds. Here's a look at each of these banks' bond portfolios compared to SVB's at the end of 2022.
| Bank | Cash as % of assets | Tangible Common Equity 12/31/2022 | AFS Unrealized Losses 12/31/2022 | HTM Unrealized Losses 12/31/2022 |
|---|---|---|---|---|
| SVB Financial | 6.5% | $11.8B | $2.5B | $15.1B |
| PacWest Bancorp | 4.9% | $2.12B | $811.1M | NM |
| Signature Bank | 5.3% | $7.3B | $2.48B | $765.2M |
| First Republic Bank | 2% | $12.8B | $471M | $4.8B |
| Western Alliance Bancorp | 1.5% | $4.4B | $890M | $177M |
Source: Bank financial statements and regulatory filings.
As you can see above, while many of these banks are sitting on significant unrealized losses in their bond portfolios, none would see their entire tangible common equity wiped out like SVB if they had to sell all of their bonds in both their AFS and HTM portfolios. Even when you compare SVB's HTM unrealized losses to First Republic, a bank that is more similar in size than the others, it's really not even close when you think about the damage SVB had in its bond portfolio.
Interestingly, Signature Bank (SBNY), which was closed on Sunday by regulators, could have also handled its bond losses without wiping out equity. But the bank is unique in that it had a lot of deposits tied to digital asset clients that used the bank for its real-time payments network as a fiat on-and-off ramp. After the collapse of FTX, Signature had already experienced large deposit outflows and been dealing with volatility. Regulators also cited systemic risk when closing Signature.
The next thing that was unique to SVB is the fact that most of its depository accounts held balances well over $250,000, which is the maximum the Federal Deposit Insurance Corporation (FDIC) will currently insure. Its deposit base was also highly concentrated among the start-up, tech, and VC ecosystems. Through FDIC call reports, we can get a glimpse of how concentrated each bank's deposit base is and how much exposure it has to uninsured deposits.
| Bank | Total Deposits 12/31/22 (000) | Total Accounts with > $250,000 12/31/22 | Total Uninsured Deposits 12/31/22 (000) | Uninsured Deposits as % of Total Deposits 12/31/2022 |
|---|---|---|---|---|
| SVB Financial | $175,488,000 | 37,466 | $156,747,000 | 89% |
| PacWest Bancorp | $34,308,507 | 13,956 | $19,743,771 | 57.4% |
| First Republic | $177,134,444 | 84,680 | $140,533,529 | 79% |
| Western Alliance | $55,232,604 | 15,305 | $42,144,957 | 76% |
Source: Bank call reports
A lot of these banks do have some similarities to SVB when you think about the high number of uninsured deposits but keep in mind that these numbers don't tell us enough about their customer base. For instance, in a recent research note, UBS analyst Erika Najarian said that while deposits from venture capital and private equity companies made up 52% of SVB's deposits, they make up only 8% of First Republic's.
What we do know
Banks like First Republic, PacWest, and Western Alliance are trying to let everyone know that they are not like SVB. First Republic's CEO Jim Herbert told CNBC Monday that it had not seen large deposit outflows. The bank also secured additional funding from the Federal Reserve and JPMorgan Chase and said it had unused liquidity of $70 billion.
A few days ago, Western Alliance released a quarterly update saying that deposits had grown $7.8 billion this year and maintained its deposit growth guidance of 13% to 17%.
Obviously, in times like these, all bets are off. The situation is rapidly evolving and once a bank loses trust it can be very difficult to prevent a run. But looking at the numbers, First Republic, PacWest, and Western Alliance all look like they could absorb unrealized losses in their bond portfolios without having solvency issues, not that there wouldn't be some pain. There is a lot more to analyze, of course, but at face value, these banks may have a few similarities to SVB but also still look quite different based on what we know.
