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Latest Memo from Howard Marks Oaktree Capital: Lessons from SVB Collapse
A good review, but even Marks missed one important aspect.
Many banks, including SVB and Signature, initially had their Treasuries as AWS (available-for-sale). But in the initial phases of Fed rate hikes, when there were talks of inflation being transitory, most moved Treasuries from AWS to HTM (hold-to-maturity) to reduce hits to their earnings and balance sheets. THAT compounded the problem. It isn't easy to shift back from HTM. But as the Fed continued relentlessly with the rate hikes (and transitory inflation was only in the rearview mirror), banks were really stuck with these hugely underwater securities that anyone could see.
Comments
Many banks, including SVB and Signature, initially had their Treasuries as AWS (available-for-sale). But in the initial phases of Fed rate hikes, when there were talks of inflation being transitory, most moved Treasuries from AWS to HTM (hold-to-maturity) to reduce hits to their earnings and balance sheets. THAT compounded the problem. It isn't easy to shift back from HTM. But as the Fed continued relentlessly with the rate hikes (and transitory inflation was only in the rearview mirror), banks were really stuck with these hugely underwater securities that anyone could see.
The rest of the review is just fine.
Yup. Good ol’ Howard Marks