Silicon Valley Bank was a hedge fund `in drag,’ consultant says

The now defunct Silicon Valley bank was a “hedge fund in drag,” according to banking consultant Chris Whalen, chairman of Whalen Global Advisors.

“Why did they go long mortgage backs,” Whalen said in an interview on CNBC on Thursday. “Because they knew that the warrants and the stuff that they really depended on for their earnings, which was tech companies, was going to have a bad year. So they figured, well the Fed’s going to pivot, so let’s load up on mortgage backs and hit one out of the park.”

“That’s not the way you’re supposed to run a bank,” Whalen continued. “They deserve what they got.”

Most banks did the right thing, Whalen said.

“They bough risk free securities and then the Fed buried them,” Whalen added. “I think Elizabeth Warren, by the way, is absolutely right to slam Powell.”

Whalen’s comments came before a Bloomberg report on Sunday that the Federal Deposit Insurance Corp. is moving toward a breakup of Silicon Valley Bank after it was unable to find a suitor for the entire company. The agency is now looking to sell the failed lender in at least two parts, Bloomberg report, citing people familiar.

Bloomberg reported on Saturday that First Citizens BancShares (FCNCA) was said to be considering an offer for Silicon Valley Bank.