In this photo illustration, the Silicon Valley Bank (SVB) logo is seen on a smartphone screen with the NYSE (New York Stock Exchange) logos in the background in Chania, Greece, March 13, 2023.
Nicholas Kakoulis | Nurphoto | Getty Images
Even my mother is pleased with the Silicon Valley bank bailout plan.
In a phone call last night, she expressed her admiration for the FDIC’s decision to make the bank whole deposit holders. Not just for what it will do for Silicon Valley savers, but for what it will do for bank savings account holders across the country.
“The banks will have to give all of us depositors more interest, and it’s about time,” she told me.
Wall Street strategists seem to agree with her.
“Another aspect of the current situation, which is not yet quantifiable, is that it is likely to intensify competition for retail deposits,” Oppenheimer’s Chris Katowski said in a note to clients on Monday morning.
Other strategists noted the impact of paying higher interest on deposits on net interest income and margins.
One thing is certain: the bank of mom will have to work hard to earn its deposits. She keeps only the minimum amount in her savings account to pay bills. She invested the rest in bank CDs. My mother, a Bond maven.
She gushed about her new love for bond investing and her connection to the Silicon Valley bank crash.
She had called me a couple of weeks before to say that she was going to take out an annual bank CD and was surprised that her local bank was offering her a return of over 4%.
“I couldn’t believe it, that after all these years of nothing, I was finally offered something,” she said.
She considered putting even more money into bank CDs and even asked about investing in short-term Treasuries, which is what the whole country is doing: withdrawing money from their bank accounts and investing in government fixed-income bonds in the near future. curve.
She is friendly with the tellers at several different banks in her town. They all told her they would call her in the next week or so to let her know what crops they were offering.
Anyway, as I pointed out, the difference between yields is likely to be small. She’s going to choose the highest return, even if it’s only 10 basis points.
“I don’t care if there isn’t a big difference, I just feel like my money matters more now,” she said.
My mother became a bond buyer. And she loves it. She texted me again this weekend.
“I watch TV all day to see what’s going on with the banks in California,” she said Saturday. In the phone call, she rightly pointed out that in addition to the problem of deposit flight, much of the collateral damage to other banks came from people like her taking money out of their bank accounts to buy Treasuries that were going to cut yields. in banks like hers.
Banks take a hit
When I told her that bank stocks had fallen 15% last week in part because of worries about higher rates for savers like her, she disagreed.
“Robert, the banks have not been kind to us over the years when I’ve been getting 0.4% on my savings accounts for the last 10 years,” she said. “Now I’m clapping and I don’t feel sorry for them.”
Over the weekend, traders traded notes on the massive moves made by Silicon Valley Bank during Thursday and Friday trading.
The good news is that prices have gone into freefall, but the plumbing hasn’t broken.
Equilibrium S&P Banking The ETF fell 15% last week to close at its lowest level in more than two years for the fund, which included holdings in Silicon Valley Bank.
Volumes in the fund were among the highest ever recorded in KBE’s 18-year history, outside of the 2008-2009 financial crisis. Leveraged bets like the Direxion Daily Regional Banks Bull 3X Shares also reached near-historic volumes.
Trading through ETFs has not prevented prices from falling, but it has provided an orderly and efficient method for traders to bet for and against banks.
Long moves in short-term bond funds
There were other ripple effects.
Short-term Treasury ETFs such as the Vanguard Short-Term Treasury ETF, which tracks maturities of 1-3 years, and the iShares Short Treasury Bond, which tracks maturities of 1-12 months, have been heavily traded.
These ETFs have attracted huge interest from investors concerned about rising rates.
With financials accounting for 12% of the S&P 500, the decline in banking stocks was a major drag on the S&P 500 last week.
The S&P 500 closed at 3,861, its lowest level since mid-January. Last week, the Dow Jones Industrial Average turned negative for the year, down 3.7% in 2023.
S&P 500 on verge of joining Dow; it increased by only 0.6% over the year. The Nasdaq, which rose 6.4%, is entirely dependent on January’s tech rally.
As BTIG’s Jonathan Krinsky pointed out, 3.925-3950 is the most traded area in the past few years. For now, it looks like the S&P will be back in a much more comfortable range.