In talking about bank failures and SVB/Signature, it’s easy to dismiss the problems as unique because these were unique banks. One was focused on VC and the other had huge Crypto exposures.
Obviously, these were bad actors, and this couldn’t happen to others right? Well….YES, it can happen to others and sometimes “stable” assets experience major changes in value. Fishermen love the phrase, “that’s why they call it fishing and not catching”. To borrow from that sentiment, this is investing, not guaranteeing.
Banks fund loan activities by holding a combination of deposits and securities. When these securities are loan pools consisting of commercial mortgage back securities (CMBS), we have to ask, what are mortgages against? For many CMBS, the answer is office properties. Quick show of hands….how many of you went to the office all 5 days last week? We’ll set the bar at 50% and take the under. This change in worker behavior obviously resulted in massive unrealized losses on office properties. Doesn’t sound much different than VC does it? We’re not suggesting contagion is imminent, but we do think the market has tried too hard to dismiss SVB and Signature eccentricities.