The fallout from SVB is again dominating the news. VCs are supposedly working on a plan to save parts of SVB. Seems a little like someone drowning you and then offering to provide CPR.

The lowdown

• 💊 Pfizer to buy cancer drug developer Seagen in $43 billion deal.

• 🛢️ Saudi oil giant Aramco announces record profit of $161 billion.

• SVB fallout:

  • 🦠 SVB contagion puts many more banks under pressure globally.

  • ⚖️ Shareholders sue SVB CEO and CFO for fraud.

  • ❤️‍🩹 VC firms working on ‘long-shot’ plan to preserve parts of SVB.

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Fixed income securities’ period of excitement

Banks most commonly lose money through poor lending practices or by holding assets that turn out to be worthless. SVB lost money in a different way ($) – through long-dated fixed income securities that carry almost no default risk. Because of this lack of default risk, the bonds offer minimal yield and are typically very boring instruments.

These types of instruments are however exposed to interest rate risk. Until recently, rates typically moved slowly and so there was time to get out of the way (with perhaps a small loss) before a larger catastrophe.

SVB’s mistake is very much like the mistakes that caused the UK gilt crisis at the end of 2022. Government bond yields increased rapidly, and pension funds were caught out, needing to provide more collateral (cash) than they had or could make liquid. In both cases, government intervention was needed to bring stability to the chaos caused by the bond villain.

The content we're consuming today

• The Closer podcast: Episode 6: The man who sold Bowie bonds.

• WSJ on YouTube: Airbnb Ratings: How Much Do Five Stars Matter? | Your Money Briefing.

Off-balance sheet items

• It has been 10 years since Eleanor Catton won the Booker Prize for The Luminaries (good book, terrible TV series). She is back with ‘Birnam Wood’ – a psychological thriller about a group of guerrilla gardeners.

The bottom line