Mar 11, 2023 - Economy & Business

SVB: What a difference a week makes

Photo illustration: Tiffany Herring/Axios; Photo: Lauren Justice/Bloomberg/Getty Images

Last week, Silicon Valley Bank CEO and president Greg Becker was interviewed on stage at the annual Upfront Summit in Los Angeles, by The Information reporter Kate Clark. Here's what he said when asked about the simmering concerns (lightly edited for clarity):

There are some concerns about the liquidity health of the bank … because you parked a bunch of money when interest rates were low in a bad bond portfolio. … Are those valid concerns?

I’ll start with the story I tell our employees. This has been the case for the last 30 years. When you have a cycle and its going really well we get praised to the extreme. Conversely, when the market is down, people pile on because it's like, "Oh my God, the credit is gonna be bad, and liquidity and deposits and all that stuff."

So, to me, what are the important things? The important things are: We have a very low loan-to-deposit ratio, which is important when you think about it.

Credit quality is incredibly strong and actually prepared even if it gets a lot worse, and we expect it to get worse.

And the third thing is liquidity. When you go through liquidity—and banks have different ways to calculate it—but it's like, you can look at your cash, your borrowing availability and what your securities are that you could sell.

So the question that came up in that article you referenced is basically, if you were to sell all your securities, would there be a large loss? And the answer is true. But what we’ve been publicly saying, and we said that last quarter, is that we have is zero intention to sell those securities.

So, it's like a loan portfolio that you lent money when the rates were low, and now if you mark those to market, it would actually be lower than the valuation, so it’s the same thing.

You know, most importantly, we have a stable structure, strong capital ratios to support our clients pretty much no matter what happens

I think the criticism is that you should have seen those interest rates rising. … Do you think you made a mistake in not predicting that we were going to enter this downturn?

If anyone can say that they forecast a 5.5% interest rate from last year, when they were zero, please let me know what your next forecast is.

I really thing that's the fundamental — we expected the following: We expected the rates to increase, but when you do scenario planning, you think about up rates 100 basis points, up 200 basis points.

Then you create your balance sheet in a way that is structured for pretty much no matter what happens, you can manage through that.

So, when I think about it, it’s more of a headwind to what level of profitability we have than any other issue, and that’s really what this storyline is about.

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