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Macaskill on markets: SVB – Is hedging only good for Wall Street?

Interest rate risk management has been complicated by the fall in yields after the US bailout of SVB’s depositors. Clients may feel that hedging chiefly benefits Wall Street dealers rather than themselves.


Goldman Sachs pulled off one part of a planned rescue of Silicon Valley Bank (SVB). Unfortunately, the sale of a portfolio of securities with a book value of almost $24 billion by SVB to the firm on March 8 for $21.45 billion did not accompany a successful equity fundraising and help to shore up confidence in the technology-focused lender.

SVB instead failed within a couple of days, as a bank run prompted its receivership and a US government bailout of its uninsured depositors.

Goldman was at least able to deploy its silver linings trading playbook by turning a quick dealing profit on the purchase of bonds from SVB, which was a cheering result in an otherwise distressing episode for global financial markets.

The amount of the trading profit is a matter of some debate. There were reports that it had cleared $100 million from buying then selling or offsetting the bonds, which were high-quality securities such as Treasuries, though a source familiar with the trade said that the total was much less than $100 million.

Goldman declined to comment.

The bank’s managers appear to have opted to cut the cost of managing its own interest-rate duration exposure

Much will have depended on the velocity of the offsetting of SVB’s troublesome portfolio.