Signature Bank (SBNY)

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Traders Eye Potential Windfall in Defunct Signature Bank’s Bonds
FDIC balance sheet points to positive worth at failed bank
Seaport has been activing making markets in the bonds






By Reshmi Basu
December 12, 2023 at 9:38 PM UTC

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Traders are betting that bonds tied to the defunct Signature Bank hold unexpected value, sending prices on the securities soaring from near zero.
In recent days, the bank’s 4% subordinated bonds due 2030 have jumped to around 13 cents on the dollar, after trading in November for a quarter of a penny, according to Trace. Its 4.125% subordinated notes due 2029 also last changed hands at 13 cents, up from a penny last month.


The surge of activity in the bonds — which have been thinly traded since the Federal Deposit Insurance Corporation took over the New York-based bank in March — comes after traders and investors discovered a recent FDIC balance sheet showing that Signature Bridge Bank, the unit the FDIC created to take over Signature, has a positive net worth of $446 million, according to people with knowledge of the matter.
Signature’s failure came two days after Silicon Valley Bank was seized by regulators, and was followed by the collapse of First Republic Bank. FDIC balance sheets for those lenders show large holes — nearly $17 billion for First Republic, and $13 billion at Silicon Valley Bridge Bank.
Brokers including Seaport Group have been actively quoting the bonds in recent weeks, said the people, who asked not to be identified discussing a private matter.
Seaport didn’t immediately respond to requests for comment. A representative for the FDIC declined to comment.
Around $575 million of subordinated bonds are tied to Signature Bank, and any surplus at the bridge bank would theoretically be returned to creditors by the FDIC, the people said.
The FDIC said the takeover would cost its deposit insurance fund around $2.5 billion. The FDIC has begun auctioning off the bank’s portfolio, which included $110 billion of assets at the end of 2022.