SVB was a “hedge fund in drag,” taking risky bets at a poor time, Chris Whalen said. But other banks shouldn’t be blamed for losses in their bond portfolios, he told CNBC. Instead, the losses are the Fed’s responsibility after it hiked rates aggressively, he added. Loading Something is loading.
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Banks shouldn’t be blamed for the losses in their bond holdings — but Silicon Valley Bank’s failure was self-made, according to Chris Whalen, chairman of Whalen Global Advisors.
In a Thursday interview with CNBC, he instead blamed the Federal Reserve for keeping rates low with massive bond purchases, then suddenly raising rates sharply.
“You cannot blame the bankers for this,” Whalen said, “because the government is manipulating the market.”
But then there’s Silicon Valley Bank.
The lender that catered heavily to tech startups and venture capital firms was seized by regulators last week. It followed a run on deposits that was triggered by management’s disclosure of a $1.8 billion loss from the sale of a bond portfolio.
“I’m not talking about Silicon Valley Bank. That was a hedge fund in drag,” Whalen said.
It relied on risky bets in a bad year for the tech industry, its core depository group, he said. To offset declines from its tech clients, Whalen said SVB’s strategy was to bet on mortgage-backed securities.
“They figured, ‘well, the Fed’s going to pivot, let’s load up on mortgage backs and hit one out of the park.’ That’s not the way you’re supposed to run a bank,” he said. “They deserve what they got.”
Meanwhile, he added that most other banks took the appropriate course of action, purchasing risk-free securities, but were later undermined by the Fed.
The FDIC has estimated that US banks were sitting on $620 billion in unrealized losses on securities at the end of 2022. The losses came as the Fed raised benchmark rates sharply, sending the value of US Treasury bonds and other US-backed debt lower.
“When you have a bond market and a mortgage market that’s concentrated as much as it is today because of quantitative easing, you can’t raise rates that much or you make everybody insolvent,” Whalen said.