Silicon Valley Bank (OTCPK: SIVBQ) stock is up 69% on the day and it's very, very, difficult to work out why. Other than perhaps just some excess of enthusiasm about any recovery possible in Chapter 11. We tend to think that's unlikely to be honest but then differences of views are what make markets. The problem here is that bank Chapter 11s are somewhat different from those of more regular companies. This means that even if assets have risen in value again - which they might well have done - a bank Chapter 11 isn;t then undone. Nor is there likely to be a recovery for the equity.
Clearly, large numbers disagree with this line of thinking. SIVBQ might be up that 69%, but trade in it is up what appears to be near ten times. From a million or so pieces a day to perhaps 10 million pieces yesterday. Assuming that some goodly portion of those are on the buy side that would be enough to explain the price move. But that only puts the puzzle one iteration back, why so many buy side orders?
SIVBQ stock price from NASDAQ We can understand the possibility that people are trading upon. There have been instances when asset values turn around - Hertz is the obvious example - and that then leads to a payout to equity even in Chapter 11. But bank closures really just don't work that way. Silicon Valley Bank had large losses on the hold to maturity bond and loan book. That's OK, those needn't be crystallised. Except, when there's a bank run, they do need to be crystallised in order to free up the cash to repay depositors. Which is what happened. The FDIC/The Fed then step in and organise an orderly wind down. Some part of which is selling off other assets (ie, loans and bonds and so on, which are assets to a bank) to other banks. Well, OK, shrug. But the point here is that if those assets then rise in value again that change doesn't then accrue to the equity of SIVBQ. It's already been sold. At that price that it was sold at. Rises in those values accrue to the new owners, not the old. The reason is that all know that in a bank closure speed is of the essence. There are no Mulligans here, no do overs.
Bank Chapter 11s are different.
We agree we could be wrong here but we put this SIVBQ stock price change down to an excess of enthusiasm rather than anything objective.
