The fallout from SVB’s collapse continues to dominate the news, and we could spend the next 3 days writing about the various pieces and parts of their demise. But frankly, CNBC will cover that with far better resources than we can, so we’ll stick to the points that we find underappreciated and give them a bit more focus. In that vein, we think that analysts and the media alike are missing a very important point about how interconnected some of this banking fallout is with concepts of working from home and commercial real estate. If you’ve been following this story closely over the last few weeks, you may have learned more about banking regulations and accounting rules than you ever thought you would. Phrases like “held for sale”, “mark to market”, and “Accumulated Other Comprehensive Income” are suddenly topics for cocktail parties. On some level, we think that’s amazing and overdue. But on another, it suggests that while the rules are sinking in, the “why’s” have not yet.
We had a quick chuckle last week when a story from Axios suggested that SVB employees blame remote work for the bank’s failure. Many have pointed out there is less productivity and accountability from remote workers, but few companies have been able to move the needle and get folks back into the office. This is where the connection back to bank balance sheets happens so read carefully…while everyone seems ready to talk about moving assets from held for sale accounts to held to maturity or AOCI accounts, they almost never suggest what those assets are or why banks are so unwilling to recognize the unrealized losses. We’ve looked though the bank balance sheets. One of the largest components is Office properties. Bankers are loath to take losses if they don’t have to. But, do we not logically believe that these office buildings will have to be marked to market relatively soon given what we know about the financing that was used to buy them?!?!?!?! Without other actions, can we reasonably expect that depositors who trust the banks to maintain stable capital as to be unaffected by the evaporation of that collateral? The issues are certainly broader than just office and work from home jobs, but this is acute and obvious.
So maybe WFH did kill SVB. The question is…who’s next?