It can happen fast.
(ticker: SBNY) failed over the weekend. It seems that the bank’s association with cryptocurrencies after the collapse of the Silicon Valley bank scared depositors, which in turn put pressure on bank deposits, which in turn led to regulatory action.
were signed taken over on Sunday by the New York Department of Banking Services. The FDIC, the Federal Reserve and the Treasury Department said that Signature as well as all of the Silicon Valley Bank’s depositors will be protected.
Both banks had above average levels of uninsured deposits and some unusual business uncertainty. This combination is becoming too much for bank investors.
Signature, which lent primarily to private equity and commercial businesses and had on its board former Congressman and co-author of the Dodd-Frank Act Barney Frank, Expires 2022 With approximately $110 billion in assets, including $74 billion in debt. At the end of the year, deposits stood at about $89 billion and the bank’s equity stood at $8 billion.
Signature also had a cryptocurrency business. While Signature did not have loans backed by cryptocurrencies or have cryptocurrencies on its balance sheet, it did have a payment platform to process crypto transactions. But deposits linked to crypto platforms were falling, causing some concern to Wall Street.
Before the SVB fiasco, there wasn’t much to worry about. Signature had 10 Buy ratings out of 17 analysts listed on Bloomberg after reported earnings on January 17. The average analyst price target was about $145 per share.
As the crisis escalated in SVB, Signature stock fell nearly 50%. The company reported deposit balances of approximately $89 billion and loan balances of approximately $72 billion as of March 8.
“The bank was apparently closed due to similar funding pressures related to the company’s crypto banking,” wrote analyst Gary Turner at DA Davidson in a Monday report. Deposits started flowing out of the bank just like what happened in SVB, he said. Tanner said that, like SVB, about 90% of Signature’s deposits were uninsured, meaning that the balance held by individuals or businesses was above the $250,000 insurance limit guaranteed by the FDIC. The mounting run on those deposits forced the bank to close.
Somebody could have come forward to buy the bank, but it did not happen. This did not happen for SVB either. In that case, uncertainty over SVB’s loan portfolio has kept buyers away, explained Barry Knapp, founder of Ironsides Macroeconomics. Baron’s,
This does not appear to be the case with the signature. SVB had approximately $91 billion in securities held for maturity through the end of 2022. This was out of $212 billion in total assets. This is more than 40% of the assets. Signature’s held-to-maturity portfolio was approximately $8 billion, representing less than 10% of assets.
Potential acquaintances may not like Signature’s exposure to private equity businesses. Of a total loan book of roughly $75 billion, Signature had approximately $28 billion in private equity loans. Signature also lent to commercial real estate businesses and other borrowers.
Signature Bank’s “ties to the crypto industry” may limit its appeal to other banks, JP Morgan analyst Vivek Juneja wrote on Monday.
Lack of capital was not a concern. Signature’s so-called Tier 1 capital cushion was approximately 11%, placing it in the middle of the pack for large US banks.
JP Morgan Chase & Co.
(JPM) had a Tier 1 capital ratio of about 15%, as did SVB.
Failures are hurting regional bank stocks.
iShares US Regional Banks ETF
(IAT) is down 13% in afternoon trading.
Dow Jones Industrial Average
were up 0.7% and 0.5%, respectively.
Write to Al Root at [email protected]