ON POLITICS

risk because their market value falls when interest rates rise, as SVB discovered to its sorrow.

M&T didn’t reach for the additional yield offered by long-term bonds, Chairman Rene Jones explained in a letter to shareholders last month.

“We chose to be patient in investing the cash until rates offered a better return and there was less risk to our shareholders’ equity,” he wrote.

“The timing of these actions allowed us to benefit from rising rates over the course of the year, simultaneously reducing the potential negative impacts of future rate declines.”

This means M&T chose to wait for bond yields to rise before investing excess cash, a strategy that would have been evident to any banker listening to Chairman Jerome Powell’s declarations that the Federal Reserve would raise interest rates to tame inflation. By being patient, not only did M&T capture higher returns on its investments, but it also avoided the markdowns that blew a $1.8 billion hole in SVB’s balance sheet.

In a report last week, Odeon Cap- ital analyst Dick Bove reported which banks are vulnerable to the balance-sheet mismanagement that sank SVB. He examined the balance sheets of 150 banks with at least $1 billion in assets and calculated which would report the biggest and smallest declines in equity if they marked all their securities to market value.

His research shows that SVB was a true outlier. The bank had reported $12 billion in common equity, but that figure was negative $5 billion when adjusted for market conditions, a difference of 143%. No other bank’s discrepancy was nearly as large.

JPMorgan reported $265 billion in common equity and $218 billion in adjusted equity, Bove found, an 18% difference. The difference was

17% at Citigroup and 46% at Bank of America. At M&T, the difference was only 7%.

Outperforming

M&T isn’t out of the woods entirely.

Chief Financial Officer Darren King said at a recent investor conference that since last year customers with deposit balances of $250,000 or more have been “more aggressively” seeking out higher-yielding products and moving their money accordingly. Still, Bove’s analysis indicates that if M&T had to sell securities to meet depositor demand for cash, the exercise wouldn’t stress the bank.

That helps explain why M&T Bank’s stock has modestly outperformed its peers’ since the banking panic took hold. Heading into last Monday, it had lost 21% of its value in the previous three weeks, compared with a 28% drop in the KBW Bank Index. ■