SVB dominates secondary as bonds bounce higher; banks pressured, Ally, Credit Suisse decline

By Cristal Cody

Tupelo, Miss., March 13 – SVB Financial Group securities made modest gains of about 3 points to more than 8 points in heavy secondary trading that dominated the bond markets Monday.

About $1.3 billion of SVB’s notes and perpetual securities traded, a source said.

Government leaders spent the weekend and Monday announcing plans to shore up the industry and assuring the public that SVB’s collapse is limited, even as a few other banks found themselves in the crosshairs, including Signature Bank.

On Friday, SVB’s bonds sank more than 50 points in a stunning drop from its high-grade paper levels at the close Wednesday to the shutdown and seizure on Friday of the company’s Silicon Valley Bank.

SVB’s collapse came after its market update on Wednesday revealed the company sold almost all of its securities portfolio at a loss of $1.8 billion and planned to raise $2.25 billion through equity and mandatory convertible preferred share offerings that saw price talk emerge before the bank was seized by regulators.

SVB Financial Group announced Monday that its board of directors has appointed a restructuring committee to explore strategic alternatives for the holding company and its SVB Capital and SVB Securities businesses, as well as other assets and investments.

In addition, the company said the committee “will explore all alternatives for addressing the approximately $3 billion of funded debt held by the holding company, which is recourse only to SVB Financial Group and is not guaranteed by the subsidiaries.”

On Sunday, Treasury secretary Janet L. Yellen, Federal Reserve Board chairman Jerome H. Powell, and FDIC chairman Martin J. Gruenberg announced actions to protect all depositors with no losses shouldered by taxpayers, while shareholders and certain unsecured debtholders will not be protected.

The government also announced similar “systemic risk exception” for New York-based Signature Bank after it was closed Sunday by state regulators.

The Federal Reserve Board said it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

Other bank paper was under pressure Monday, including Ally Financial Inc. and Huntington Bancshares Inc.

Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG and Societe Generale shed about 5 points to more than 9 points.

Focus is expected to shift Tuesday to February’s Consumer Price Index data as market participants weigh odds the Federal Reserve will hike rates by 50 basis points or less at the March 21-22 meeting.

“Longer term, the tremors in the U.S. banking system in recent days should kill off the Fed's restrictive monetary policy of large rate hikes,” Eric Vanraes, portfolio manager of the Strategic Bond Opportunities Fund at Eric Sturdza Investments, said in a statement Monday. “For now, markets are not anticipating a Lehman Brothers style panic. Last week, it still looked plausible that the SVB case would prove a storm in a teacup. It looks now more likely that March and April could provide a turning point in bond markets.”

The 10-year Treasury note yield dropped 18 bps, or about 5%, to 3.51% on Monday.

The CBOE Volatility index moved up another 7% to $26.52 by the day’s close. The ‘Fear Factor’ index has increased more than 30% since Thursday.

The iShares iBoxx High Yield Corporate Bond ETF declined 40 cents, or 0.55%, to $73.04.

Meanwhile, February clocked in with the highest year-to-date global corporate default tally since 2009, according to a S&P Global Ratings report Monday.

The default total rose to 23 as of Feb. 28, with 15 defaults just in February.

U.S. and European trailing-12-month speculative-grade corporate default rates could increase to 4% and 3¼%, respectively, by December, S&P said.

SVB modestly better

SVB notes clawed back some of Friday’s losses as the paper dominated the junk secondary market on about $1.3 billion of paper traded Monday, a source said.

The securities went out about 3 points to 8¼ points higher after sinking an average of 30 points to about 57 points Friday following the Federal Deposit Insurance Corp. seizure of the company’s 17-branch Silicon Valley Bank in Santa Clara, Calif.

On Monday, SVB’s 4.57% bonds due 2033 traded 4¾ points better at 44¾ bid on heavy secondary volume totaling $175.7 million.

The bonds dropped about 37 points Friday on $213 million of trading.

SVB’s 4% perpetual preferred securities recovered 3 points to head out Monday at 6 bid on $58 million of paper changing hands.

The issue plunged about 55 points Friday on $60 million of trading.

SVB’s 4¼% perpetual securities added 4¼ points to trade Monday at 7¼ bid on $56 million of secondary action.

The issue had sunk about 55 points by the close Friday on $52 million of volume.

The company was a go-to banker for U.S. venture-backed technology and life science companies and U.S. venture-backed technology and healthcare IPOs.

The bank’s downfall is the first bank failure seen since Lehman Brothers and the 2008 financial crisis, according to BofA Securities Inc. research note released Monday.

“SIVB IG index size is a relatively modest $3.3 (billion),” the note said. “However, the impact on the IG market is large given that banks are by far the biggest IG sector, accounting for 23% of the market.”

Huntington Bancshares drops

Ally Financials’ notes and perpetual securities were moving on about $60 million of secondary activity Monday, a source said.

The 5¾% notes due 2025 (Baa3/BB+) dropped more than 5¾ points to 90¼ bid, while the 4.7% perpetual securities (Ba2/BB-) were trading at the 63½ bid area.

Huntington Bancshares’ 4.45% perpetual securities (Baa3/BB+) slid about 14½ points to a 76 bid handle during the session on lighter trading totaling $3.7 million, a source said.

Citigroup, Credit Suisse, Deutsche Bank and Societe Generale also shed about 5 points to more than 9 points in light trading.

Credit Suisse’s 9¾% perpetual securities (B) declined 7 3/8 points to head out at 76¾ bid on $8 million of volume.

Distressed returns widen

S&P U.S. High Yield Corporate Distressed Bond index one-day returns widened Friday to minus 0.9%, capping off a week that saw steadily diminishing returns.

Returns declined from minus 0.62% on Thursday, minus 0.35% on Wednesday, minus 0.23% on Tuesday and a positive 0.57% at the prior week’s start.

Month-to-date returns finished the prior week at minus 1.36%.

Quarterly and year-to-date total returns also softened to 7.62% on Friday from 8.59% in the prior session.

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