Which Funds Are Taking the Biggest Hit From Silicon Valley Bank and Other Bank Stocks

LewisBraham

https://morningstar.com/articles/1143550/which-funds-are-taking-the-biggest-hit-on-silicon-valley-bank-and-other-bank-stocks
It's one thing for a fund in general to hold bank stocks. It's another for an active fund with a manager to bet big on SVB. Did these managers not look at the bank's capital/balance sheet and see that it was heavily invested in long-term bonds in a rising rate environment, while also facing tech sector depositor withdrawals? In this regard, Diamond Hill Mid Cap, usually a careful risk-conscious shop, deserves to be dinged. As do, BBH and Sound Shore and Franklin Mutual. From the article:

In [Diamond Hill Mid Cap's] shareholder commentary from the end of 2022, manager Chris Welch acknowledged the stock was facing difficulties. “Regional banks First Republic and SVB Financial were pressured amid a rising rate environment, which is weighing on net interest margins.”

Welch singled out the unique position of Silicon Valley Bank. “SVB Financial faced additional headwinds given its exposure to the innovation economy, its primary area of focus—though we believe such an environment offers the company an opportunity to add tremendous value for its clients and cement its leadership position in a lucrative space,” he wrote.

PRESSmUP

What I find odd is that KRE, the regional bank ETF simply didn't move lower on Thursday and Friday. They were leaking oil beginning Monday, down over 16% for the week. Someone knew what was happening before the press and the public became aware.

yogibearbull

PRESSmUP said:

What I find odd is that KRE, the regional bank ETF simply didn't move lower on Thursday and Friday. They were leaking oil beginning Monday, down over 16% for the week. Someone knew what was happening before the press and the public became aware.

KRE fell -8.11% on Thursday, -4.39% on Friday.
https://stockcharts.com/h-sc/ui?s=KRE&p=D&b=5&g=0&id=p16451725406

Old_Joe

"Someone knew what was happening before..."

Ain't that just always the case?

sma3

There are several stinkers in KRE, that have lost a significant amount in the last year. NO SVB but there is first Republic.

Even babies like Webster Bank, and Citizens Financial local CT MA community banks are getting tossed out with the bathwater

LewisBraham

I think Yogi is right here, though, that the KRE ETF did actually fall on Thursday and Friday. My question here is similar to the Washington Mutual debacle, when active fund managers kept holding that one straight into its meltdown. How do they not see the significant risks involved, with in this case, rising rates and depositor withdrawals?

Observant1

LewisBraham said:

I think Yogi is right here, though, that the KRE ETF did actually fall on Thursday and Friday. My question here is similar to the Washington Mutual debacle, when active fund managers kept holding that one straight into its meltdown. How do they not see the significant risks involved, with in this case, rising rates and depositor withdrawals?

This reminds me of Bill Nygren's Washington Mutual bet during the Global Financial Crisis.

PRESSmUP

LewisBraham said:

I think Yogi is right here, though, that the KRE ETF did actually fall on Thursday and Friday.

It did. My point though was that it fell almost 5% prior to Thursday...a somewhat curious 3 day move for that index with no news...

LewisBraham

Although it could be inside information, more likely the previous decline before the SVB news had to do with rate hikes and Wells Fargo layoffs:
https://seekingalpha.com/news/3945059-why-did-wells-fargo-stock-drop-today-fed-chairs-comments-hit-bank-stocks-hard

Bank stocks, particularly, were hit hard, with the KBW Nasdaq Bank Index (BKX) slid 3.9%. Among the biggest U.S. banks, Wells Fargo (WFC) sank the most, -4.7%.

While banks often benefit from higher interest rates, in that they are able to collect more interest from the loans they provide, the demand for loans declines as it becomes more expensive to borrow. With higher rates, specifically, demand for mortgages also tumbles. And if the Fed tightening leads to a recession, defaults on loans will increase.

Wells Fargo (WFC) has been one of the biggest mortgage lenders for years, but is scaling back its presence in the sector. The bank reportedly laid off hundreds of mortgage bankers this week and it aims to create a more focused home lending business.

At the same time, banks will also be pressured to pay more interest on deposits as account holders shop for the best rate.

Old_Joe

"more likely the previous decline before the SVB news had to do with rate hikes and Wells Fargo layoffs:"

You think maybe Wells Fargo laid off the guys who just said to "buy Signature Bank, New York", which was closed today by its state chartering authority?

Nah, probably not.

rforno

Old_Joe said:

You think maybe Wells Fargo laid off the guys who just said to "buy Signature Bank, New York", which was closed today by its state chartering authority?

Nah, probably not.

"We stand by our analysts, because they're here precisely to make an OPINION, you know. And nobody will eeeeeveeeer be 100% correct in their research reports and/or market recommendations. But don't worry, we'll have more insights and analysis for you to consider tomorrow!"

Observant1

How can anyone trust Wells Fargo after multiple trangressions committed over many years?

Old_Joe

Ummmmmm...... let me get back to you on that.

Crash

Trust Wells? LOL. We paid off our zero-interest installment loan with them. They had granted us a credit card without our asking for it. It will never be used. The biggest cluster-f**k operation there is. They just don't care. And I saw a report again about something re: Wells only yesterday. AGAIN.