Raphael Stevens

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Check out the companies making headlines after hours.
GitLab — Shares tumbled 36% after GitLab issued a softer-than-expected outlook. It posted fiscal-year 2024 revenue guidance of $529 million to $533 million in 2023, compared to expectations of $586.4 million, according to Refinitiv. Otherwise, the firm reported a beat on the top and bottom lines in its fourth quarter results, per Refinitiv.

United Airlines — Shares fell 6.5% after United Airlines posted a profit warning for its first quarter. The airline company guided for first-quarter adjusted loss between $1.00 and 60 cents per share, according to an 8-K filing with the Securities and Exchange Commission. That’s compared to prior guidance of earnings of 50 cents to $1.00 per share. It’s also lower than consensus expectations of 65 cents per share, according to FactSet.
First Republic Bank — The bank stock popped 10% in extended trading, after plunging 61.8% during the regular trading session on Monday. Fears of contagion risk from Silicon Valley Bank weighed on the stock.
KeyCorp — The stock jumped 6% in after hours trading Monday after falling more than 27% during the regular trading session. Regional banks were pummeled after the collapse of Silicon Valley Bank raised fears of contagion risk, despite a plan to backstop depositors from regulators.

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Customers wait in line outside of a Silicon Valley Bank branch in Wellesley, Massachusetts, US, on Monday, March 13, 2023. 
Sophie Park | Bloomberg | Getty Images

Regulators could make a second attempt to sell collapsed Silicon Valley Bank after the auction over the weekend led nowhere, according to a senior Treasury official.
There’s still an opportunity to sell Silicon Valley Bank, according to the official, saying that’s not off the table.

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The Federal Deposit Insurance Corp. struggled to find a buyer for the failed bank’s assets during the weekend. CNBC previously reported that PNC, which expressed interest initially, decided not to place an official bid after conducting due diligence.
The Wall Street Journal first reported that regulators are planning a second auction, citing people familiar with the matter.
The collapse over the past several days of Silicon Valley Bank and Signature Bank — the second- and third-largest bank failures in U.S. history — are worrying many that there could be a contagion effect in the broader banking system.
On Sunday evening, the Federal Reserve, FDIC and Treasury Department announced a plan to guarantee the uninsured depositors at SVB and Signature. The Fed also announced an additional funding facility for troubled banks.

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People are seen inside the First Republic Bank branch in Midtown Manhattan in New York City, New York, U.S., March 13, 2023. REUTERS/Mike Segar
Mike Segar | Reuters

Check out the companies making the biggest moves midday:
Regional banks —Shares of regional banks plummeted following the collapse of Silicon Valley Bank and Signature Bank. First Republic Bank sank 61.83%, and Western Alliance Bancorp dropped 47.06%. PacWest Bancorp shed 21.05%. KeyCorp fell 27.33%, and Zions Bancorporation lost 25.72%.

Citi, Bank of America, Goldman Sachs — Shares of major banks also saw losses after the closure of the Silicon Valley Bank and Signature Bank. Citi dropped 7.45%. Bank of America shed 5.81%, and Goldman Sachs lost 3.71%.
Charles Schwab — The stock sank 11.57% as part of the broader rout in the banking sector. However, Schwab reassured shareholders and customers that it isn’t seeing any significant outflows and that 80% of its total deposits fall within the FDIC insurance limits. Citi also upgraded the stock to buy from neutral, saying the stock’s recent decline gives it a “compelling” risk-reward ratio.
Illumina — Shares soared by 16.97%. CNBC’s Scott Wapner confirmed that billionaire activist Carl Icahn is preparing a proxy fight at the biotech company. Icahn said that the company’s acquisition of Grail cost its shareholders about $50 billion. Illumina responded to the investor’s claims Monday, recommending that shareholders not support his nominees.
Moderna — The biotechnology company’s shares gained 6.95% after TD Cowen upgraded the stock to outperform from market perform. The Wall Street firm said Moderna will be a leader in the RSV vaccine market.
Newmont — Shares of the gold miner rallied 7.02% following a spike in gold prices. Spot gold passed the key level of $1,900 as investors bet the Federal Reserve may tone down rate hikes on the heels of Silicon Valley Bank’s collapse.

Eli Lilly — Shares of the drug maker rose 3.01% after Wells Fargo upgraded the shares to overweight, calling recent weakness a buying opportunity for investors. The firm’s analyst said the company has a good research and development engine and an absence of near- to medium-term loss of exclusivity. Wells Fargo also said Eli Lilly isn’t dependent on M&A activity for growth
Seagen — Shares surged 14.51% on news that Pfizer is acquiring the cancer drug maker as it looks past its Covid sales portfolio. Pfizer’s stock rose about 1.5% on the news.
Etsy —The stock lost 2.14%. Over the weekend, NBC News reported that the e-commerce company warned sellers that the collapse of Silicon Valley Bank is causing delays in processing payments. The company said it expects to begin processing the payments as soon as Monday and said the delay will not have a material impact on its quarter.
Provention Bio — Shares surged 259.7% after Sanofi agreed to acquire Provention Bio for $2.9 billion for its type-1 diabetes treatment, among other immune-mediated disease treatments.
Qualtrics International — Shares of the data analytics firm jumped 6.6% on reports that U.S. private equity group Silver Lake agreed to buy the company for $12.5 billion, or $18.15 per share, alongside Canada’s largest pension fund. As part of the acquisition, software group SAP said Monday it will sell its stake in Qualtrics for $7.7 billion.
Insulet — The stock gained 6.83% after news that Insulet will replace SVB Financial Group in the S&P 500 index. SIVB will be removed from the broad market index after the close on Tuesday.
Rivian Automotive — – Shares fell 3.04%. The action comes after a Rivian spokeswoman said that the EV company and Amazon are in discussions to adjust the exclusivity clause in their agreement for the EV maker’s electric delivery trucks.
— CNBC’s Samantha Subin, Hakyung Kim, Pia Singh and Tanaya Macheel contributed reporting.

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Following the fall of Silicon Valley Bank, a lot of terms are being thrown around on CNBC and elsewhere in discussions about what went wrong. One key term is “duration risk” along the yield curve in the bond market. We don’t usually get into this level of detail on fixed income at the Club — but in this case, it’s important to understanding the second-biggest bank collapse in U.S. history. The now-failed institution, which served tech start-ups and venture capital firms for over four decades, got caught in longer-duration U.S. Treasury bonds. When there was a run on the bank late last week, SVB had to sell these securities at steep losses to raise funds quickly for its customers. In the end, the rush of clients demanding to withdraw money from SVB led to U.S. regulators stepping in to protect depositors in order to prevent contagion in the banking sector. Here’s a guide to the dynamics that led to SVB’s demise. How a bank operates First, let’s get a few key basics out of the way. Deposits at a bank are held as a liability on the balance sheet. The bank takes in deposits and is therefore on the hook when the depositor requests a withdrawal. The bank also pays out interest on these deposits. A bank is also in the business of making money and needs to generate at least enough money on those deposits to pay off the interest. The deposited money can’t just sit in cash. In order to generate a profit and more than cover the interest owed on deposits, a bank will take that money and lend it at a higher rate. As these loans generate interest paid to the bank, they are considered assets. A bank makes money on the spread, or net interest margin (NIM), between what it’s paying in interest to depositors and what it’s generating in interest from loans and other investments. The money made is referred to as net interest income (NII). The lending banks engage in can take many forms — from lines of credit to mortgages to car loans. Another option for a bank that doesn’t have much demand for consumer or business loans is to buy securities such as U.S. Treasurys, bonds backed by the full faith and credit of the U.S. That’s what SVB did: It took the deposits and bought up a bunch of Treasury bonds, which requires holding the notes for the term to get your money back or sell them at the market price. Those Treasury prices, which move in the opposite direction of yields, could be worth less than the purchase price. And in SVB’s case, they were worth much less. Duration risk in bonds Those Treasury purchases in and of themselves were not the issue at SVB. The problem occurred when depositors came calling for their money and the bank didn’t have the cash on hand. So, it had to sell Treasurys of longer durations that hadn’t matured yet and were underwater in price. That’s because the Federal Reserve’s steady campaign of policy interest rate hikes to fight inflation pushed bond yields to multiyear highs. (Ironically, bond yields have come down since the banking chaos, which sent bond prices higher). A deposit withdrawal can happen at any time. There’s essentially no duration on a deposit; the money is expected to be 100% accessible at all times since it’s considered a cash balance. The value of customer accounts does not fluctuate with the market. On the other hand, the market value of the investments the bank makes with those deposits can fluctuate greatly between the time of the initial investment and the maturity date. Even Treasury notes can see their value on paper fluctuate greatly prior to maturation. This mismatch, which always exists to some extent, is where “duration risk” comes into play. Without getting too much into the weeds, the market value of a bond falls, in percentage points, by whatever its duration is for every 1% increase in rates. In other words, a bond is expected to drop in price by its duration multiplied by the percentage change in rates. For example, a bond portfolio with an average duration of five years would be expected to fall 5% for every 1 percentage point increase in rates. Should rates rise 2 percentage points, that portfolio would be expected to fall 10% given its duration. An average duration of 10 years would see the portfolio fall by 10% for every 1 percentage point increase in rates and 20% in the event of a 2 percentage point increase in rates, and so on. These moves are not exact in the real world and the timing of cash flows can impact durations. But this is a good rough guide. As rates and bond yields rise, the value of the deposits (liabilities) is unchanged. However, the value of the bank’s investments (assets) can fall dramatically. The nature of deposits means that the liability can be called in at any time. The assets, on the other hand, need time to recover. They will recover but how long that takes depends on their duration and the interest rate environment. It’s usually not a problem if the plan is to hold the asset until maturity, as any losses between now and then are only paper losses. In the end, at the maturity date, you receive 100% of your investment back and made whatever the interest rate was at the time of purchase. However, should you need to sell those bonds before maturation, in order to meet liquidity needs – like a lot of depositors banging on the door asking for their money back – then you’ve got a real issue. Those losses on paper must be realized in order to convert the bonds back to cash and fulfill withdrawals. An experienced risk management team should have hedges in place to protect against this known possibility. This did not happen at SVB. The risk is that the duration of the investments made by the bank doesn’t match up with its potential liquidity needs. Silicon Valley Bank reached too far out on the yield curve in search of higher yield. Put another way, they tied up the deposits in bonds with longer durations than appropriate. The bank also failed to adequately hedge the risk posed by a rise in rates. Doing so would have ensured that SVB had the ability to ride out any declines seen on paper between the purchase of these assets and their maturation. In fact, according to SVB’s fourth-quarter release, the portfolio duration of its fixed-income securities was 5.6 years and the hedge-adjusted duration was also 5.6 years. A proper hedge would have shortened that duration. There was effectively no hedge whatsoever. What caused the run on SVB While SVB did not manage its “duration risk” properly as rates rose, the bank also miscalculated how much the Fed’s tightening cycle would hurt the very start-up companies that were its clientele. The central bank’s battle against relentlessly high inflation led to initial public offerings (IPOs) slowing significantly. As a result, SVB’s clients — short of raising more venture money, which has been harder to come by in the current environment — were forced to use their deposits to run their businesses. Since start-ups don’t generally make profits, they burn through cash in hopes of one day going public — the ultimate exit and liquidity event. That IPO endgame has been delayed for many of these companies. All this really started last Wednesday when SVB published a mid-quarter update saying that in order to strengthen the bank’s financial position (keep in mind any wording on a release like this is going to be through rose-colored glasses to some extent) management took actions including the sale of “substantially all” available for sale securities and announced a capital raise via the sale of common equity and mandatory convertible preferred shares. As a result of these actions, the bank realized a one-time, post-tax earnings loss of approximately $1.8 billion. Now, that may have been OK. However, the one thing no depositor, especially a tech startup that needs cash to run operations and make payroll, wants to hear is that the bank holding their money is being forced to take action due to a need to “strengthen balance sheet liquidity.” Any depositor who does hear that is understandably going to want to move their funds to a place where they feel more secure. With all available-for-sale securities sold, the bank would have to turn to securities it intended to hold to maturity, which it stands to reason had longer durations and therefore even greater losses on paper. To this point, according to the mid-quarter update, the average duration of the securities sold was 3.6 years, well below the 5.6-year duration of the total portfolio. As a result, there simply wasn’t enough market value to fulfill the redemption requests. That’s how a 40-year institution can crumble in a matter of days, leaving federal regulators to try to clean up the mess and prevent it from spreading. That’s what the Fed and the Treasury Department did on Sunday evening when they said all SVB depositors (and those at another failed bank Signature ) would be made whole. On Monday morning, President Joe Biden spoke about the bank failures saying the government backing of depositors would not cost taxpayers anything. “Instead the money will come from the fees that banks pay into the Deposit Insurance Fund.” Biden also made it clear that “investors in the banks will not be protected” because they took the risk. “That’s how capitalism works,” he added. Additionally, he said the entire banking system is sound, and the work done after the 2008 financial crisis to make it so no banks are too-big-to-fail worked. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A man passes a sign Silicon Valley Banks headquarters in Santa Clara, California, on March 13, 2023.
Noah Berger | Afp | Getty Images

Following the fall of Silicon Valley Bank, a lot of terms are being thrown around on CNBC and elsewhere in discussions about what went wrong. One key term is “duration risk” along the yield curve in the bond market. We don’t usually get into this level of detail on fixed income at the Club — but in this case, it’s important to understanding the second-biggest bank collapse in U.S. history. More

SVB, the 16th biggest bank in the U.S. at the start of last week, had been operational for 40 years and was considered a reliable source of funding for tech startups and venture capital firms.
SVB Financial Group’s holdings were hit hard by the Fed’s aggressive interest rate hikes, and their value dropped dramatically — causing depositors to panic and withdraw their funds.
The collapse is more the product of a faulty system than the bank itself, some analysts argue.

Andrey Rudakov | Bloomberg | Getty Images

The fallout from the shuttering of Silicon Valley Bank — the second-largest bank collapse in U.S. history — continued Monday, dragging down international banking stocks.
European banking stocks were down 6.3% at 12:40 p.m. London time on Monday, after closing 4% lower on Friday, as U.S. financial regulators shut down SVB and took control of its deposits. All major U.S. indexes closed at least 4% lower on the week Friday amid the SVB panic, while regulators shut down Signature Bank — one of the cryptocurrency industry’s main lenders — on Sunday, citing systemic risks.

U.S. federal regulators said that all deposits will be made whole, in a relief to many depositors. But the SVB crisis is far from an isolated incident, and its roots lie in a bigger systemic problem, many investors and analysts say.
“With regard to who’s to blame here, I think that the greed and avarice that has long been present in Silicon Valley has come home to roost,” Keith Fitz-Gerald, a trader and principal of the Fitz-Gerald Group, told CNBC’s Capital Connection on Monday.
“We had the Federal Board of Reserve change from fractional reserves to no reserves, and that let banks like SVB go out and start buying assets instead of simply loaning money,” he said. “My contention is banking should be boring, a lot like watching paint dry — and any time it’s not, you’ve got a problem. Which is unfortunately what happened.”
SVB — the 16th biggest bank in the U.S. at the start of last week — had been operational for 40 years and was considered a reliable source of funding for tech startups and venture capital firms. The California-based commercial lender was a subsidiary of SVB Financial Group, and it was Silicon Valley’s largest bank by deposits.

SVB Financial Group’s holdings — assets such as U.S. Treasurys and government-backed mortgage securities viewed as safe — were hit by the Fed’s aggressive interest rate hikes, and their value dropped dramatically.

The company’s tipping point came Wednesday, when SVB announced it had sold $21 billion worth of its securities at a roughly $1.8 billion loss and said it needed to raise $2.25 billion to meet clients’ withdrawal needs and fund new lending. That news sent its stock price plunging and triggered a panic-induced wave of withdrawals from VCs and other depositors. Within a day, SVB stock had tanked 60% and led to a loss of more than $80 billion in bank shares globally.
SVB employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments. And the bank’s CEO, Greg Becker, sold $3.6 million in company shares on Feb. 27, less than two weeks before SVB revealed the massive losses that prompted its collapse, according to regulatory filings.

Regulators asleep at the wheel?

Many market analysts say that regulators have been asleep at the wheel. SVB’s strategy — relying heavily on corporate deposits as opposed to retail and holding a large proportion of assets in loans and securities — actually made it significantly riskier than many other banks.
Some argue that the bank’s downfall was due to its leaders’ greed for yield: its holdings were disproportionately exposed to long-term interest rates, which are at a 15-year high in an effort to bring down inflation. The increased rates hit the value of SVB’s securities, which subsequently damaged depositors’ confidence.

I think it’s an embarrassment to the banking regulators, frankly.

Keith Fitz-Gerald
Principal of the Fitz-Gerald Group

“SVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits,” Michael Cembalest, J.P. Morgan’s chairman of market and investment strategy, wrote in a weekend note to clients.
The lender, he said, “carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.”
This is more the product of a faulty system than the bank itself, Fitz-Gerald argued. Concerning federal and state regulators, he said, “I would submit not only are they complicit, they had a hand in designing this mess…. SVB did what they needed to do, arguably, within the structure of rules that are the problem. So, to me, it’s the system that’s broken, or at least needs to be seriously reviewed here.”

‘Stupid risks’

Legendary investor Michael Burry similarly called out what he described as greed and “stupid risks” in the sector.
“2000, 2008, 2023, it is always the same,” Burry, who founded the hedge fund Scion Asset Management and gained fame for successfully betting against the subprime mortgage market in 2008, was quoted as saying on Sunday.
“People full of hubris and greed take stupid risks, and fail. Money is then printed. Because it works so well.”

Fitz-Gerald doesn’t see SVB’s collapse and the crisis in the tech and crypto markets as mirroring 2008. Additionally, he sees a lower contagion risk due to federal regulators’ emergency plan, announced Sunday by the Treasury Department, the Federal Reserve and the the Federal Deposit Insurance Corporation, to guarantee depositors’ funds.
The contagion risk “has been substantially reduced with the FDIC, the Fed and the US Treasury Department stepping into the fray. So you know, again, this collective sigh of relief, I think that global contagion is off the table,” he said.
“But,” he added, “we simply don’t know where the counterparty risk lies right now. So in contrast to 2008, the parallel really is 1929. They have got to stop this and they’ve got to stop it now. We won’t know until the U.S. session opens.”
“I am personally flabbergasted that the system is what it is today and that this stuff was allowed to happen,” he said. “Where were the regulators? Where were the auditors? I think there’s going to be very serious questions asked about how the rating systems work. Why were these banks allowed to take on assets when they should have been backing their deposits?” Fitz-Gerald asked.
“That is a fundamental issue that has got to come to the forefront now. We can’t ignore it and kick the can down the road. I think it’s an embarrassment to the US Federal Reserve. I think it’s an embarrassment to the banking regulators, frankly.”

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