Hey, this is Tom and I got a question for you. How does a little-known bank out of California that I would assume 80 of you have never heard about before. Today's video takes the entire global banking industry with it for a crazy ride within 24 hours. All right, let's take another look at shares of Silicon Valley After hours, we have new reporting on companies pulling money out of the struggling Bank Over the past 24 hours, shares of Silicon Valley Bank drop by 60.

We'll talk about why the shares drop by 60 and they're actually down 30 in pre-market as of the making of this video. while this was going on the top four: U.S Banks dropped 50 billion dollars in market cap in a single day including guys like Schwab and JP Morgan JP Morgan dropped five percent Schwab drop like 13. It's been an absolute bloodbath. unfortunately.

this is the way Banks work. They rely on trust when they lose that trust. Um, bad things really will happen Now there's a reason you've never heard about Silicon Valley Bank And the reason is because this Bank works specifically exclusively with growth companies. With startups and with Venture Capital firms, it's basically a niche product located in Santa Clara California And it's not supposed to be something you know about.

but over the ballooning of the entire Growth Tech industry, since the Pandemic 2020 2021, the bank ballooned with it. You know, cheap money, zero interest, the absolute flooding of funds, the FED starting a party right? So the Silicon Valley Bank enjoyed that. deposits went up by 90 year over year in 2021 reaching 200 billion dollars. the party was on.

But then as you know, the FED shut down the tap, the parents came home and turned on the lights and kicked everybody out parties over. This is pretty much what happened in 2022. The FED stopped the cheap Money era. It started tightening, interest rates, jumped up, the cheap Money era was over, and the growth tech industry basically plummeted into the toilet faster than Grandpa after Christmas party and with it Silicon Valley Bank And obviously over the past year the Svb balance sheet went from looking like a rock star to Swiss cheese pretty much full of holes now as of December 31st 2022 to Svb's balance sheet showed available for sale Securities which had a fair market value of 26 billion dollars which is 2.5 billion dollars below the 28.5 billion of it actually costing the bank.

So the bank bought it at 28.5 and now it's marked at 26. and it had held to mature the Securities with fair market value of 76 billion dollars which is 15 billion dollars below the balance sheet value. So give or take a few hundred million here and there. Svb is in the hall for about 17 and a half billion dollars which is actually more than the entire Equity it has which is 16 billion dollars and that's never good.

I mean whether you're Banker or a grocery guy from you know from the neighborhood you know that that's bad. Now with that, obviously, confidence in the bank started to Road deposit status to fall out and people started leaving the bank. There's little money coming in. You know the story.

You know every bank that people lose confidence in. This is they exact same story now. Deposits dropped 13 during the final three quarters of 2022 as you would expect and they continue to drop well into 2023. As of the making of this video.

So Eventually, standard employers had to wake up from their Slumber and actually downgrade Svb and they took their credit down to one level above junk. Moody's actually quickly did the same thing because it's a copycat industry and they said that you know with downgrading Svb because deterioration in the bank's funding, liquidity, and profitability declining Venture Capital Investments Etc et cetera. Etc Yeah, thanks. Captain Obvious I Mean we all knew that But the trigger what started this whole implosion, this cataclysmic craziness that we saw yesterday was none of that.

It was something completely different. Now, about two days ago, March 8 Svb came out and admitted it sold all of its available for sale Securities because it's needed cash now. After that, they things went rapidly downhill. The official explanation from the bank was that this was nothing to worry about.

In fact, the Svbco came out and said stay calm Everybody stay Calm says there's nothing more relaxing than a panic CEO Screaming at you to stay calm right? Well, as expected that terrified. The Venture Capital Clients of the bank including Peter Thiel who has a lot of money with it through his funds who apparently instructed These funds to take everything out of this as fast as they can now. other smaller VC firms followed suit you know, obviously which caused a 60 drop in the share price of SVP which is the biggest drop we've seen in the last seven years. The founders fund which a key VC player is advising that Com its own companies should withdraw funds from Silicon Valley Bank Now the stock is still dropping in pre-market as we speak, it's about 30 percent down, so it ain't over yet now.

according to Bloomberg a startup CEO who would not identify himself said that yesterday. he tried to take out their millions of dollars from Svb and could not withdraw it. But on the other hand, Bloomberg also said that several other clients of the bank actually told them that they were able to take out their money Thursday without any significant issues. Whatever that means.

We even had Bill Ackman yesterday calling for a government bailout of Svb yesterday, which pretty much tells you how bad things are. although I wouldn't say that Bill Ackman is the best indicator of how bad things are. You remember the whole no disguise falling thing that they did back in the day, so you know, take it with a grain of salt in my opinion, and this is strictly my own opinion. For whatever it's worth to you, this is now starting to smell a little bit like a bank run and you know if that happens, nobody wants to be that last guy standing in a room holding its nuts.

So be very careful how you interpret this story. So the question is, how bad can this get and is this kind of game over for Svb and what does it mean for the rest of the stock market in general? Well, there is a risk that Svb runs out of cash and you know, can't operate properly, which would mean that it would either be sold to a competitor or taking apart piece by piece. Um, but I think it's a bit of overreaction at this point, because especially since you know the thing that started this whole shitstorm which is the sale of stock that they've done brought in a lot of cash, which should be enough for Svb to function for a while at least and stay afloat. But I think the more interesting question is, what about the rest of the industry and the greater? Market Obviously that's not a good signed for the market and the big problem is that SVP is not the only Bank who has this issue.

They're not the only Bank who said on a bunch of unrealized losses. Now the entire banking industry right now is basically holding on to it's not hoping for this thing not to get worse because there's a bunch of banks out there sitting on a heap of unrealized losses and it's pretty much like a ticking Time Bomb They hope would not explode now. Look I Don't have a crystal ball I Don't know how this plays out, but it seems like a big ass Canary and a tiny ass mine warning us about what's to come Now as always I Hope you enjoyed this video. See you in the next one.

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