Morning Toast March 14th

SVB no more | HSBC wins big in US tech sector.


What a finish to last week and start to this one. Three U.S. banks collapsing, further hurting Tech and Crypto markets! 

Silvergate and Signature bank (two major supporters of the Crypto markets) are now under the control of the regulator and the U.S. 's 16th largest bank, Silicon Valley Bank, has already been sold for £1 to HSBC after the regulator closed their door to protect depositors.

Conspiracy, collusion on the part of major VC’s, or just plain old bad management can be to blame for SVB collapsing. Users of SVB probably feel like a weight has been lifted off their shoulders with U.S. regulators announcing a plan to make Silicon Valley Bank depositors whole.

But danger still lurks. An important inflation report is on tap this week, and the banking sector remains skittish following SVB’s shocking collapse. After another weekly loss last week, the S&P is now barely in the green for the year.

SVB Focus

The government’s propping up of SVB’s depositors means the U.S. startup ecosystem will avoid an “extinction-level event,” as some startup leaders had warned. More than half of U.S. tech and life-science startups banked with SVB, and many were concerned they wouldn’t have enough money to pay employees this week or keep their companies running.

While it appears that we won’t be reliving 2008, expect SVB to remain in the headlines for days and weeks to come. Politically charged debates over the Fed’s decision to backstop depositors, the meaning(lessness) of FDIC insurance, regulation of mid-sized banks, and how to prevent another SVB-like collapse have already begun and will only grow louder.

With just over US$200 billion in assets, SVB is the biggest U.S. bank failure since the Global Financial Crisis of 2008.

Following the action on SVB, on Sunday U.S. time, the New York State banking regulator decided to close crypto-focused commercial bank, Signature Bank, further damaging confidence in the U.S. banking sector.

But how did this happen..

Put simply, SVB ‘shorted’ themselves by taking short-term money from depositors and then using those funds to invest in bonds with a long-dated 3-year maturity. The issue is that the pivot from the Fed last week of doubling down on interest rates, led to a devaluing of those bonds, meaning SVB was short on cash!

When SVB went to the market to raise a little over $2bn in funds, major VCs (whose companies are the majority of SVB clients) caught wind and set off a bank run by telling their companies to pull their funds. The big question here is why was SVB investing so much of their asset base on longer-term bonds in a market where rates can only rise from the historical decade-long 0%. 

SVB relied on a regulatory concession available to smaller banks that did not require it to set aside capital for any “mark-to-market” paper losses on the fixed-rate securities it owns – losses which were mounting given the rise in bond yields. Basically, they did not need to report the current value of their assets, just the future value at maturity. 

Given this concession, it also did not hedge against the risk of these paper losses. So, when an initial fall in deposits (due to growing financial problems among its major tech industry depositors) forced it to sell some assets and realise some losses, others (largely uninsured depositors also in the tech industry) got spooked and a classic bank run followed.

It begs the question of how many other smaller banks are sitting on major paper losses and are also vulnerable to a non-insured depositor run? The problem for markets (as during the GFC) is that the answer to this won’t be known for days or potentially weeks.

To try and keep this an isolated incident the Federal Reserve has stated it will create a new lending program for banks - the Bank Term Funding Program (BTFP) – aimed at protecting institutions impacted by instability from these banking failures. This program will offer loans of up to one year to banks, credit unions, savings associations and other institutions, which can take advantage and pledge high-quality debt (such as treasuries) as collateral. This will enable banks to meet customer withdrawals without having to liquidate their bonds at a loss – aimed at preventing further bank runs.

Banks can now also borrow funds equal to the ‘par value’ of the collateral they pledge. This should give more confidence to institutions and investors as this in turn supports confidence in the financial system, providing funding guarantees and liquidity that are considered essential during financial crises.


The regulator would be conscious of consolidation risks by allowing a major U.S. bank to essentially acquire the banking needs of the Tech and Startup sector in one fell sweep. HSBC is obviously a major bank but it is not a major U.S. bank. Meaning there is still competition to be had in this space. This is a big win for HSBC. 

Other News

Delta outlined a plan to replace 95% of its fuel consumption in its planes with sustainable aviation fuels made from plant or animal material by 2050.

Bing, Microsoft’s search engine, surpassed 100 million daily active users for the first time (for reference, Google Search has over 1 billion daily active users).

Wing, the Alphabet-owned drone company, debuted a drone delivery network.

Grammarly is getting into the generative AI game.

Douugh, did you know?

No one’s got a crystal ball that predicts the markets, so trying to know when a dip is going to happen is nearly impossible. But that doesn’t mean you can’t be prepared for them. Here’s our list of 4 ways to structure your portfolio for market dips.

  • Don’t put your eggs in one basket

    Diversification is all about spreading your money out across a whole variety of investments. A diversified portfolio will help even out the effect that a market dip has across your portfolio. You can diversify across different markets internationally, industries, and types of investments (like stocks or ETFs). 

  • Cover all your bases - growth & value stocks

    Growth stocks are shares in companies expected to grow at a faster rate than average, meaning they can sometimes be more volatile, and less likely to pay dividends. 

    Value stocks are companies that are considered to be undervalued, tending to be more mature, less volatile and are more likely to pay dividends. 

    When a market dip happens, value stocks tend to perform better than how they perform in rising share markets. In comparison, growth stocks tend to perform worse during market dips and better in rising share markets. 

    Diversifying across both will help you survive and thrive in market dips.

  • Defend yourself

    Defensive stocks are shares in companies that are well-established, meaning they have strong cash flows and pay dividends regularly. 

    Due to their survival and success for many years, they’ve weathered many market dips, so they’re generally more stable. They tend to stay relatively steady compared to the large drops many others would face in the overall market. Having these guys in your portfolio will do you well in good times and bad. 

  • Think before you sell

    Whilst it's always important to think before you sell, it's even more important to do during a market dip. Sometimes, companies start to fall in value with no real hope of turning around and selling can be best.

    However, too often, selling your investments in a dip because you feel nervous can be a backwards step, for when it turns around, you’ll probably have to pay a premium dollar to buy back in—or just face the fact you made a mistake. Just be sure to think things through when selling in market dips and review your portfolio regularly.

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