Will Vanguard take a bath?

Investment Analysis Clubs Macro Economic Trends and Risks
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Most of my reading says that most of depositors will get most of their money back, mostly :wink:

There is lots of talk of “bailing out SVB”, but I hope that does not include the owners, who should take the bath they rightfully deserve after bad lending practices of borrowing short and lending long - as we have repeatedly seen across the history of banking. (For a counter example consider Berkshire, sitting on a massive pile of cash which they continuously roll over in short term securities so as never to be caught “cash poor.” They give up a tiny bit of yield for liquidity.)

#1 owner of SVB: Vanguard, at 10.85%.

Top 10 Owners of SVB Financial Group

The Vanguard Group, Inc. 10.85%
SSgA Funds Management, Inc. 5.22%
BlackRock Fund Advisors 5.18%
Alecta Pension Insurance Mutual 4.46%
JPMorgan Investment Management, I… 3.67%
Artisan Partners LP 2.75%
Geode Capital Management LLC 2.12%
Harding Loevner LP 2.01%
Franklin Mutual Advisers LLC 1.68%
Capital Research & Management Co…

But wait! There’s more!

Top 10 Mutual Funds holding SVB (SIVB)

#1 Vanguard Total Stock Market Index 3.07%

#2 Vanguard Mid Cap Index 2.33%

#3 Vanguard 500 Index Fund 2.32%
\

Top 10 Mutual Funds Holding SVB Financial Group

Vanguard Total Stock Market Index… 3.07%
Vanguard Mid Cap Index Fund 2.33%
Vanguard 500 Index Fund 2.32%
JPMorgan Large Cap Growth Fund 1.94%
Fidelity 500 Index Fund 1.09%
SPDR S&P 500 ETF Trust 1.05%
Government Pension Fund - Global … 1.01%
iShares Core S&P 500 ETF 0.89%
American Funds Small Cap World Fun… 0.86%
SPDR Series - Financial Select Se… 0.85%

https://money.cnn.com/quote/shareholders/shareholders.html?symb=SIVB&subView=institutional

I would think the numbers in the lower half will take a mild haircut, but those in the upper chart should be a wipeout, no?

I cannot vouch for the accuracy or timeliness of the numbers, obviously; it’s what comes up in a search for “owners”

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From your link, the shareholders of Vanguard mutual funds and ETFs will collectively lose about $1.8Bn in SVB. They already have lost most of it with SVB dropping 86% last week.

Vanguard Total Stock Market Index alone has assets of $1.2trillion.

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A certain amount of banking needs to involve borrowing short and lending long. That’s how you generate the spread necessary to make a profit. (Ok - that spread and the boatload of fees they charge for virtually everything from checking accounts to “the teller sneezed and needs a kleenex” fee.)

The trick is to lend long only as much as you are sure you won’t need to return short term. CDs help with that, as do restrictions on withdrawals. I haven’t looked, but based what I know of their customer base, I’d bet a cheap, day-old donut that the vast majority of their deposits were checking accounts or similar demand deposits. With so many deposits being short term, you can’t invest too much for the long term. In that situation, most of the long term investing probably needs to be lending to your customers, not investing in bonds. Finance equipment, buildings, receivables, things like that. Probably get a better rate on that lending than you would on treasuries, to boot.

–Peter

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We are looking at “Operation Twist”.

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Vanguard owns SIVB because until Friday, SIVB was in the S&P500 and the largest Vanguard funds by far are their index funds that include S&P500 stocks. It was removed from the S&P500 over the weekend.

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SVB’s market cap is only about 6 billion according to Yahoo! (probably will be 0 tomorrow). That make’s Vanguard’s 10% or 11% about 600 million. This is a rounding error on Vanguard’s financials.

That said this will not be the last bank failure and there will be more consequences.

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True, but then there are tons of index funds and I don’t see them with that kind of exposure. How does it work that Vanguard is both an owner of size, and has three of the top positions as investors. Aren’t Fidelity and others in the index fund business?

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It could be that Vanguard bought SIVB in funds other than index funds while Fidelity didn’t. But Vanguard does have the largest index funds of all the regulars (Fidelity, Schwab, etc).

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The percentages posted were the fraction of the company that Vanguard owns. Vanguard’s figures are larger because their funds are larger.

There are just a small number of stocks that make up more than 1% of Vanguard’s portfolios and they are all big well-known companies.

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