BlackRock Inc. has recently started to gauge interest for over $100 billion in assets that were seized last month due to the failures of Silicon Valley Bank and Signature Bank, with the first list being a $292 million parcel of agency mortgage-backed securities with coupons of about 2.5% to 3%. It is anticipated that sales of the assets will emerge in increments, instead of hitting the market at once and perhaps causing more volatility in financial markets. BlackRock’s financial market’s advisory arm was employed in early April by the Federal Deposit Insurance Corp. to market the securities for sale from the two failed banks. The assets for sale include agency mortgage-backed securities, commercial mortgage-backed securities, Treasurys, corporate bonds, and other securities formed in an ultralow rate environment. Though many of the seized assets from Silicon Valley Bank and Signature Bank have government guarantees, lower coupon bonds have been under sharp pressure in the past year as the Federal Reserve has significantly increased interest rates.
The asset management giant, BlackRock, will be overseeing the sales to ensure they occur in stages to avoid unnerving the market; it was appointed the main manager of SVB Financial Group’s portfolio when the bank entered a government-assisted bankruptcy in March. The market for bonds is dominated by banks that routinely sell large chunks of bonds when interest rates change, to maintain balance sheets that reflect their future liabilities. Investors believe that the BlackRock auctions will provide a useful insight into demand for bonds linked to the mortgage industry, illustrating how much appetite there is from potential buyers.
According to The Wall Street Journal, SVB’s mortgage bond portfolio totals about $37.5 billion, not including the assets the bank still holds, which are undergoing review by BlackRock – the US’s largest asset manager – making it the biggest-ever bank failure. The failure involved a total of $160 billion in assets spread across mortgage bonds, Treasurys, corporate bonds, and other securities, much of which is now being sold. The bankruptcy had raised many concerns amongst regulators, as it indicated the growing systemic risk posed by undeveloped disclosures on the banks’ holdings.
Silicon Valley Bank’s collapse marks the first major US bankruptcy since the 2008 financial crisis, and the largest-ever US deposit insurance-backed bankruptcy auction. It comes as other smaller US banks continue to suffer under the weight of rising interest rates and mounting concerns among financial regulators.
