It doesn't matter that prices might recover in the future. I'd argue they might not -- and if anyone believed otherwise they would buy up the assets at inflated prices (why arent they?!) SVN rolled the dice, made bets, the value is way down and...they didnt have enough money to allow customers to withdraw money. That is a fail. They needed to raise a lot of cash, they didnt/couldnt raise enough. That is a fail.
Further, they underwrote tons of LoCs for startups which are underwater due to down-rounds. That isnt a temporary impairment, that is a permanent impairment.
Their customers are burning funds (as most VC-funded companies do) and VC funding is down, so declining balances via continued withdrawal is the natural state they need to support (even in the absence of a bank run.)
This is absolutely false -- there is no guarantee of this. Agency securities pay more than treasuries because there is a risk of default (never in aggregate, but pass-thru component cashflows i.e. individual homes.) Further, there is a risk that upon default, the home isn't of sufficient value to account for the lost principal. If anyone has doubts of the potential for default of agency securities, the mortgages underneath these bonds are all publicly displayed monthly: https://singlefamily.fanniemae.com/applications-technology/f... and you can see defaults also.
>> The only impairment they have is that they pay less interest in the interim than other available bonds, because their rates were locked in before the interest rate spike.
This is a third of the story.
Second third of the story: they may less interest than advertised due to defaults/delinquencies
Third third of the story -- and most important: their value has gone down, so in the immediate term, the bank depositor cannot withdraw money (because the bond cant be sold at book value.) It is absolutely not OK to tell bank depositors to wait 10yrs while a bond bays them back little by little. Bank depositors should be able to withdraw money at any point they want.
This misinformation needs to stop.
Note: AFS treatment reports the BOOK VALUE not MARKET VALUE
You can read this: https://corporatefinanceinstitute.com/resources/accounting/a... to understand AFS vs MTM treatment.
Losses are reported, definitely not clearly. Losses are hidden under "Other Comprehensive Income." If you want to be transparent about it, then it should show up in the Profit and Loss. You'd choose MTM accounting treatment. Not choosing MTM accounting treatment is literally hiding the losses into a vague bucket of income.
The idea that this was somehow hidden needs to die. People knew they were vulnerable to a run not due to some shady rumor Network, but because they reported exactly what they were doing plain as day.
They were making low but positive interest profit on those assets. They simply locked up too much money in a long-term investment to withstand a coordinated Bank Run. This was a real mistake, but it is not at all about secret accounting.
Anyone who can do simple arithmetic could determine that they were at risk in a bank run from their published documents. Most of the world simply did not care because they did not think the Run would happen
If that were the case, they wouldn't have had to raise emergency funding last week. The assets were indeed impaired. Hiding the true values via AFS accounting treatment doesn't magically make the dire circumstances sustainable.