[HN Gopher] FDIC auction for SVB said to be underway, final bids...
___________________________________________________________________
FDIC auction for SVB said to be underway, final bids due Sunday
Author : VagueMag
Score : 200 points
Date : 2023-03-12 16:16 UTC (6 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| sql-spy wrote:
| [flagged]
| dylan604 wrote:
| i don't think it takes a doctorate or any degree to understand
| the FDIC needs this to be done ASAP. so, hopefully, it didn't
| hurt reaching around patting yourself on the back with that
| non-sense
| gutdcnow wrote:
| [dead]
| halfjoking wrote:
| [flagged]
| paxys wrote:
| Is the latest Joe Rogan podcast out already?
| voisin wrote:
| Maybe (hopefully) his username is a clue?
| halfjoking wrote:
| Joe Rogan isn't creative enough to come up with this theory
| before it happens.
|
| I don't see what's wrong with prediction/speculation. If the
| US gov had their way they'd jail people for misinformation.
| So I'm just making my predictions while I still can.
| simonebrunozzi wrote:
| Does anyone know if this includes SVB UK as well? Or, given it's
| run by FDIC, it only relates to the (much bigger) US business?
| forbiddenlake wrote:
| > the BoE said: "SVB UK has a limited presence in the UK and no
| critical functions supporting the financial system. In the
| interim, the firm will stop making payments or accepting
| deposits." SVB UK confirmed it would be put into insolvency
| from this Sunday evening (tomorrow).
|
| https://techcrunch.com/2023/03/11/svb-contagion-uk-arm-shuts...
| shagymoe wrote:
| I've read that SVB UK is a totally separate entity and not
| affected. I have no evidence of that though.
| WJW wrote:
| SVB UK was just placed into an insolvency procedure by the
| Bank of England, so I guess they were not as separate as they
| thought.
|
| (https://www.bankofengland.co.uk/news/2023/march/boe-
| statemen...)
| PeterisP wrote:
| No, as the article states, it _intends_ to place SVB UK
| into an insolvency procedure but has not placed it yet. It
| makes a conservative assumption that this procedure might
| be needed "absent any meaningful further information", but
| if SVB UK provides such information and shows that it is
| separate and solvent, then it can avoid this procedure, in
| which case it would probably get sold to someone to pay the
| parent company's liabilities.
| 700000thMistake wrote:
| [dead]
| fredoralive wrote:
| It seems that SVB UK is being handled separately by the UK
| authorities, with a separate attempt to find a buyer for that
| business.
| wand3r wrote:
| wonder if stripe is capable of bidding. Would be strategic for
| them if they could make this work i bet
| moffkalast wrote:
| Why would Stripe need to buy a bank, they already have a
| license to print money.
| azinman2 wrote:
| How so?
| moffkalast wrote:
| They get to charge 3% and 30 cents for a fifth of all web
| purchases made on the entire damn planet?
| azinman2 wrote:
| I doubt it's 1/5 of all web total purchases on the
| planet, but either way they're not the ultimate exchange
| provider so most of that 3% + 30 cents goes likely to JP
| Morgan (and then split up amongst others), and they're
| always looking for ways to expand their core
| competencies.
|
| Nothing about that is a "license to print money," which
| when we're talking about banking, sounds like making fiat
| currency.
| moffkalast wrote:
| Well it's a ballpark estimate, most sources I've seen put
| them at around 19-21%, with Paypal at around 30-40% and
| various other small ones at a few percent each.
|
| If Visa and Mastercard manage to run their entire
| business on less than 1% from every transaction then I
| would expect Stripe to have at least 1% of pure profit
| from what they charge. I assume that's what JPM gets if
| they're the stockholder.
|
| I mean printing money in the colloquial way of making
| tons of cash without effort (which this frankly ought to
| be if the system is set up right), not with JPow's xerox.
| [deleted]
| linusg789 wrote:
| https://ghostarchive.org/archive/jlYao
| neonate wrote:
| https://archive.ph/XYuBe
| latchkey wrote:
| I really wish they'd televise this. I'd love to watch the bidding
| process.
| JacobDotVI wrote:
| Not an FDIC auction, but if you're interested in what this sort
| of bidding looks like the book Barbarians at the Gate details
| the LBO auction of RJR Nabisco. That auction was a lot of
| bankers squired away in conference rooms on separate floors of
| an office building while the auctioneers walked bids between
| the various groups.
| formercoder wrote:
| Sadly it doesn't work this way anymore. You just send a
| heavily lawyered pdf bid letter by email.
| paxys wrote:
| It's probably a lot less exciting than you imagine. Wait for
| the movie in a few years.
| moomoo11 wrote:
| Who would you cast for what roles?
| ejb999 wrote:
| Jim Cramer could play the CEO.
| echelon wrote:
| With AI, he doesn't even need to show up to set.
| bloodyplonker22 wrote:
| Cathie Wood would play the chief risk officer.
| cm2187 wrote:
| No that role is made for Paul Walter Hauser
| paxys wrote:
| Just reuse the entire cast of Silicon Valley. About the
| same level of competence in this situation.
| zamnos wrote:
| Scene: Erlich Bachman's house in Palo Alto. The
| team is sitting in the den around their computers.
| We see Jin-yang on the TV with a chyron saying he's the
| new owner of SVB, now DINB, and that depositors now own
| equivalent to their deposits in PiperCoin.
|
| Erlich Bachman storms into the room, bellows: Jay Powww!
| [deleted]
| asah wrote:
| months
| irrational wrote:
| It's already in post production.
| fbdab103 wrote:
| Are you imagining something like the Microsoft Excel Stream[0]?
|
| [0]: https://www.youtube.com/watch?v=xubbVvKbUfY
| htag wrote:
| It's probably closer to making an offer on a house than a live
| auction event.
| thechao wrote:
| Except the previous owner gets a Snickers bar instead of,
| say, the cash equivalent of the house.
| mixdup wrote:
| yeah, this would not be excited in the least. watching a
| dozen emails come in would be quite boring
| hedora wrote:
| They manage on presidential election night.
|
| I'd watch it just for the ads. Crypto startups? Top shelf
| whiskey?
| robswc wrote:
| Speak for yourself haha
|
| Yes, its boring emails... but emails that involve billions
| of dollars. Also the timely aspect of it would be a bit
| entertaining...
| [deleted]
| rtp4me wrote:
| No kidding. It would be fascinating to see who joins the
| bidding process and what kind of leverage/collateral they use.
| RC_ITR wrote:
| The PiP of men doing excel.
|
| The angry call from a boss about an unclear footnote.
|
| The suspense!
| [deleted]
| sigmar wrote:
| For banks that are bidding, how do they know how many assets SVB
| had? Are they working off of data from past fillings?
| WJW wrote:
| SVB itself knows which assets it has, and therefore the FDIC
| knows. They then send out invitations to bid to banks with the
| list of assets as an attachment.
|
| EDIT: It's not only the assets that are being bid on, the
| curator could just sell those themselves. But SVB has (even
| now) some amount of intangible value in terms of relations with
| customers, built up expertise in serving startups, etc etc. A
| bank looking to diversify into providing banking services for
| startups might be willing to bid more for such expertise and
| customer lists than a bank which is happy with the customer
| base it has. So I'd expect it would be mostly the intangibles
| which drive the potential differences in bids, with the market
| price of the assets merely serving as floor.
| seanhunter wrote:
| You get an excel sheet with all the assets and their current
| mark. Then you typically have until late sunday to put the bid
| in so they can resolve the bank before market opens on Monday.
|
| Source: was part of a team doing this valuation analysis over a
| very fun weekend in 2008 for one of the famous bank failures
| MuffinFlavored wrote:
| > Then you typically have until late sunday to put the bid in
| so they can resolve the bank before market opens on Monday.
|
| nobody is going to pay 100% for them, right?
|
| so it's basically who will pay the most between 50-95% for
| them?
|
| why wouldn't somebody want assets 5% off (full 95% bid?)
| MonkeyMalarky wrote:
| Are bidders expected to forget or "un-see" such knowledge
| afterwards? Or is the information not that detailed /
| anonymized in some way?
| drexlspivey wrote:
| Why would they need to un-see it?
| bunabhucan wrote:
| Competitive advantage. If bigTechA and bigTechB discuss
| merging there will come a point in the due diligence
| where certain employees are asked to review competitive
| secret sauce of the other company with the understanding
| that if the merger unravels for some reason they will
| have to take a package and stop working for their current
| employer. I can't imagine the mbs/loan portfolio is that
| proprietary though.
| qbasic_forever wrote:
| SVB is dead. The company has failed. There is no
| competitive advantage because SVB is not in competition
| anymore, it is dead. The former SVB employees are
| sticking on for 45 days (at 1.5x pay) to tie up loose
| ends according to the FDIC. But SVB is dead, the assets
| are being sold and might as well be public record at this
| point.
| nwatson wrote:
| Isn't there goodwill value left over because of
| relationships and institutional knowledge, even after SVB
| is stripped of assets and after debt is accounted for?
| Might some larger bank retain that operation and return
| some value to taxpayers?
| 700000thMistake wrote:
| [dead]
| youngtaff wrote:
| Goodwill is the difference in value between the assets of
| a company and the price an acquirer paid for a that
| company
| toast0 wrote:
| Not sure how much goodwill is left, given that a big herd
| of depositors left on thursday. But there's probably
| some. If you kept continuity with a more diversified
| client base, that's probably enough for many customers to
| stay.
| drexlspivey wrote:
| Their liabilities are greater than their assets, there is
| no equity value left. Someone can acquire them for $1 if
| they want to assume their liabilities.
| seanhunter wrote:
| The data is full detail. You know if you don't put the
| winning bid in that one of your competitors are holding
| those assets, and in certain cases even know who is holding
| it [1]. In this case it doesn't really matter that much
| because most of the assets that caused the problem are not
| the loans but the MBS that SBV bought because it had
| massively increased deposits and couldn't find enough
| eligable borrowers to lend out to.[2]
|
| [1] For various reasons it's not just "the winning bidder
| holds all the stuff". There's a lot of horse trading where
| people buy chunks of it and the winning bidder gets the
| rest. This is important from a TBTF point of view because
| the bank had a problem (ldo that's why it failed) so the
| FDIC and regulators don't really want a single other bank
| to just inherit all the problems. They would prefer them to
| be spread about a bit so there isn't just one bank under
| massive stress.
|
| [2] Yes yet another bank failure caused by mortgage backed
| securities although in this case it seems from the public
| information that it was actually the hedging strategy that
| caused SBV to go down, not the MBS. The reason MBS means it
| doesn't matter that much is all the information about
| individual MBS is public anyway and although you don't know
| who holds what on a line by line basis you know generally
| how much each bank on the street has and you know _someone_
| is holding all the pieces of a given bond.
| hd95489 wrote:
| How much of a haircut do the assets take during the
| process. I'm assuming nobody is paying market rate so how
| much under is the bid? Like 80% or like 30-40%
| Bluecobra wrote:
| On Friday's thread someone posted that the average return
| SVB bought was ~1.5%. If the average 30 year rate today
| is ~7.0%, an ~80% discount sounds correct.
| fdasflkjvalkjlk wrote:
| You're off by around a factor of 10 because you're
| valuing MBS as if they're annuities without a terminal
| value. MBS are backed by the USG and you get the full
| principal back at by maturity.
| hd95489 wrote:
| So you would expect 8% cuts? Or 2%. I could see 8%-10
| being about right.
| adriancr wrote:
| They bought 10 year bonds at 1.5% yearly. For every 100$
| they will get 116$ at maturity.
|
| Right now there are 10 year bonds at 4% that will pay
| 148$ at maturity.
|
| To be able to sell your 1.5% bonds right now you need to
| discount them sufficiently so they have the same value as
| the new 4% 10 year bonds. (otherwise why would anyone buy
| them)
|
| I'd guess you'd need to discount 148$ - 116$ = 32$.
|
| This means selling your 100$ bonds at 68$ right now to
| have buyers... Otherwise money is stuck for 10 years
| which is unfortunate if you ran out of available cash.
|
| Is this wrong?
| skippyboxedhero wrote:
| They have also been marked down already, that is what the
| big unrealised losses are about.
|
| I am not 100% sure what the accounting rules for htm vs
| afs are anymore. I believe htm allows you to amortize
| losses over the term of the loan (which is, of course,
| still as controversial as it was in 2008). But SVB has
| already taken fairly substantial markdowns already on
| securities that were transferred into htm after they
| dropped significantly.
|
| And the purpose of receivership is to preserve value for
| depositors. So the problem is that the losses have
| absorbed the firm's capital, not that other sources of
| funding have taken losses. A book of MBS is not going to
| be trading at a 30% discount to the mark a few weeks ago
| when their financial period ended. All of this stuff is
| liquid, unless their corporate lending was awful
| (unlikely) then there won't be a massive discount.
|
| Btw, this did happen last year in the UK. The BoE
| essentially left the market to sort out problems caused
| by higher rates/falling bond prices, and hedge funds
| absolutely rinsed pension funds. Some made hundreds of
| millions in a few hours. This won't happen in this case
| because FDIC has stepped in and is running a proper
| auction.
| panarky wrote:
| The rule of thumb is every 100 bp increase in rates means
| a reduction in the market value of the security equal its
| years to maturity as a percentage.
|
| So if rates are up 250 bp and there are 9 years remaining
| to maturity, that would be a 2.5 * 9% = 22.5% reduction
| in market value.
|
| But I believe current yields on 10-year MBS are greater
| than 4%, the numbers I've seen put them at about 110 bp
| over 10-year Treasurys, which would make the reduction in
| market value even deeper.
| kgwgk wrote:
| > But I believe current yields on 10-year MBS are greater
| than 4%, the numbers I've seen put them at about 110 bp
| over 10-year Treasurys, which would make the reduction in
| market value even deeper.
|
| Presumably they were yielding more than treasuries when
| they bought them as well. The relevant thing is whether
| the spread has narrowed or widened (too lazy to check and
| too coward to guess...).
| loeg wrote:
| I don't think 10-year T-notes are up 250 bps from 1.56%
| (might be mistaken -- looks like 235 bps to me), though
| 10-year MBS might be, and my impression is that SVB's
| average maturity is more like 6 years than 9. Those would
| both soften the impact on market value.
| loeg wrote:
| I believe I read that the average maturity of their
| holdings are ~6 years out of the full ten. It looks like
| T-notes with similar maturity are yielding around
| 3.9-4.0%.
|
| > Right now there are 10 year bonds at 4% that will pay
| 148$ at maturity.
|
| How are you calculating that? My impression is:
|
| > Notes and bonds are issued to pay a fixed rate of
| interest called the coupon rate. A $10,000 treasury note
| with a seven percent coupon rate pays an investor $700
| per year interest in two semi-annual payments of $350
| each. The interest from notes and bonds paid out to
| investors is simple and does not compound
|
| Over a 10-year duration, I think that 4% bond would pay
| $140 on $100. 6-year to maturity notes at 3.9% would pay,
| I believe, $123 on $100 today; and at 1.56%, $109.
|
| I think you'd value the 1.56% notes by something like the
| ratio of the two values at maturity? About 89% of what
| you'd pay for a 3.9% note. ($100 / 0.886 => $112.87;
| $112.87 * 1.0936 => about $123.)
|
| (I don't work in this sector and I might be mathing it
| wrong.)
| twoodfin wrote:
| Given the constraints, the result of this auction is
| likely to be the closest measurement of "market rate"
| we're going to get.
| hd95489 wrote:
| Only a few chosen players get to bid so it's going to
| come with some haircut off market
| seanhunter wrote:
| Deciding that is exactly what the auction is and it will
| depend on market conditions, the quality of the assets
| etc. In the case I was familiar with the assets were "AAA
| but actually garbage" for the most part and there wasn't
| a liquid market price so we bid really where we were
| guestimating the true market price would be but it was a
| heavy discount to where the failed bank had been holding
| it.
|
| I don't think I'm actually at liberty to say what our bid
| was but if you think about the gathering storm of the
| financial crisis in 2008 and "AAA but garbage" illiquid
| instruments were very hard to price and very expensive to
| fund so were trading in the 60s (cents in the dollar that
| is). So if you're on teh weekend and you get offered a
| massive parcel of that stuff marked in the 90s that you
| don't really want to hold in the first place you're going
| to bid significantly south of where the market closed
| given you know this news is going to really rock the
| market when it opens on Monday.
|
| In this case I think the MBS they are holding is going to
| be more liquid and with a reasonably secure secondary
| market, and you're not going to be able to do a proper
| valuation on the SME loans they have in a single weekend
| and there isn't a liquid market given each loan is it's
| own special creature so you're going to have to put a bit
| of a finger in the air on those. So probably somewhat of
| a haircut but less extreme.
| colechristensen wrote:
| What's your perspective on the likelihood of a few more
| similar bank failures happening in the next couple of
| quarters?
| seanhunter wrote:
| I don't have any inside scoop because I'm not in that
| world any more, so take this purely as my personal
| opinion, but I wouldn't be at all surprised if that
| happens.
|
| A lot of seemingly successful business models are hard to
| distinguish from the beneficial effect of ultra-low rates
| and a stable, growing economy[1] so the sudden raising of
| rates is going to hurt a lot. I also think the full
| effects are taking a while to filter through into the
| real economy so I personally don't think we've seen the
| worst impacts yet. I see a lot of empty office and retail
| space and know that someone took out a loan to build or
| buy that building and now don't have the rental income to
| pay back that loan. Like I say just one person's opinion
| so take it with a pinch of salt.
|
| [1] Hence the famous Buffett quote.
| https://www.goodreads.com/quotes/43237-it-s-only-when-
| the-ti...
| panarky wrote:
| Intuitively, a hundred billion dollar auction with only a
| few hours to research, analyze and horsetrade must
| necessarily result in a lower winning bid.
|
| Given all the uncertainty about the assets and other
| regional bank dominoes that are yet to fall, it seems
| like even the winner will be a low-ball offer.
|
| Doesn't that mean a bigger haircut for uninsured
| depositors than would be the case if assets were
| methodically liquidated over a few weeks or months
| instead of a fire sale on one Sunday?
| drdec wrote:
| It sounds like they are selling the bank, not the assets.
| If they are selling the bank then I think the depositors
| will be made whole by the buyer. This will factor into
| the bid.
|
| This is just my understanding, I am very open to being
| wrong.
| lmm wrote:
| > Intuitively, a hundred billion dollar auction with only
| a few hours to research, analyze and horsetrade must
| necessarily result in a lower winning bid.
|
| Maybe. Or maybe the winner's curse will apply.
|
| > Doesn't that mean a bigger haircut for uninsured
| depositors than would be the case if assets were
| methodically liquidated over a few weeks or months
| instead of a fire sale on one Sunday?
|
| Maybe. Equally the longer depositors can't access their
| deposits, the worse things are. FDIC would rather get the
| depositors their 100% quickly than get maximum recovery
| for junior debt or equityholders. Now, if there's no
| offer coming in that covers 100% of deposits, then that
| gets more interesting; it's always possible that the FDIC
| will decide to keep running the bank and purse that kind
| of strategy.
| Maven911 wrote:
| Since you're on this thread..who normally runs the
| investment decisions inside of a bank, whether retail or
| investment. Is there a CIO office or is that the function
| of their Treasury department? Does it go by other names?
|
| And in your experiences in 2008, what sort of strategy
| planning/what if scenarios were being played out since it
| was unprecedented and no one knew what was going to
| happen the next day
| hd95489 wrote:
| At the end of the day did everyone walk out of the deal
| knowing they made a boat load of money or were folks
| wondering if they would be able to offload and hedge the
| garbage they bought fast enough.
| treis wrote:
| The most (in)famous example is Bank of America buying
| Countrywide in the early stages of the 2007 crash. They
| ended up losing like 40 billion on that deal.
| chernevik wrote:
| In 2008 mortgage bonds were toxic waste looking for a
| bottom, today they're not nearly so bad. I doubt SVB had
| a team reading the tape on mortgages, so whatever they
| were buying must have been sufficiently standard as to be
| fairly liquid. (Unless they were COMPLETE idiots, which,
| I grant, is certainly does not seem impossible right
| now.) So I expect the question for most of it is interest
| rate risk rather than credit and pricing that isn't super
| complicated.
|
| I would think SVB's book of startup/venture
| capital/commercial loans would be harder for most banks
| to value. They were a big player in that space and I
| doubt many have the expertise to do a fast read on that
| book.
|
| Also, SVB's size is a real problem. There are only a few
| banks large enough to do this, and the regulators won't
| love the resulting consolidation.
|
| They may sell it in pieces to deal with all that.
|
| One big question is, does SVB have any franchise value?
| It really looks like their model depended on cozy
| relations with the VC community. You have to figure their
| whole board and C-suite will be replaced after this, how
| much of those relations remain after that? Nor am I sure
| players like JP Morgan can or want to play that game.
| yumraj wrote:
| > It really looks like their model depended on cozy
| relations with the VC community.
|
| Which the VCs shat on, so not sure how much of coziness
| remains.
| wpietri wrote:
| Look, you can't expect dogs not to bite the hand that
| feeds them. I mean, hands are made out of meat, and in
| this dog-eat-hand world, they're just doing what any
| rational canine would.
| chiph wrote:
| There may be coalitions of smaller banks being formed,
| where they agree to submit a single bid, and then
| internally split up the carcass into the parts they each
| want should they win.
|
| I haven't seen the terms of the FDIC auction but I
| suspect it's winner take all, so any coalition will also
| need a plan how to split up or share the undesirable
| pieces.
| SoftTalker wrote:
| So if they had a more diverse portfolio and laddered
| maturities they might have been OK? And would that have
| been hard to do? Not a finance guy.
| lmm wrote:
| Maybe. Essentially anything they could've bought would've
| had a similar kind of interest rate exposure. Laddering
| maturities would definitely have helped, but they
| expanded their portfolio quickly, and off-the-run issues
| are much less deeply traded, especially if you're a
| newcomer that doesn't have connections with the rest of
| the market.
| christophilus wrote:
| Another thing that may have helped would be if they
| hedged their interest rate risk. That's discussed on this
| podcast[0] by some folks who do that sort of thing for
| big banks.
|
| It's pretty nuts that they didn't have a hedge in place,
| given the pretty clear policy of the Fed.
|
| [0] https://pca.st/rq7eo75p
| lordnacho wrote:
| Hedge costs money, and the instruments in question were
| not going to default, given they were government backed,
| so if they could just hang on until maturity they would
| get the yield from the day they bought them.
| kgwgk wrote:
| Holding bonds in a rising rates environment also costs
| money.
|
| Hedging could have been a way to reduce the duration
| without selling - i.e. without realizing losses as the
| bonds could still be classified as hold-to-maturity - and
| avoid further losses.
|
| They chose not to.
| beezle wrote:
| The only factor MBS had in any of this, and it was
| relatively small, was compared to "normal" notes and
| bonds (govt or corp) the duration of mortgages extends in
| a risking rate environment due to fewer prepayments. So
| rather than say a 4% change for every 100bp move in
| interest rates, the MBS might change 4.5 or 5%.
| _boffin_ wrote:
| Would love to hear more if you're willing to Take the time
| and write it out.
| Symmetry wrote:
| Like the Excel Spreadsheet that FTX was shopping around but
| accurate and with no ""Hidden, poorly internally labeled
| 'fiat@' account" entry. SVB may have screwed up badly but I
| don't think anyone is accusing them of bad record keeping or
| any other impropriety.
| ambicapter wrote:
| I suspect the FDIC made that spreadsheet on Friday/Saturday
| after taking over the bank and its quality is way higher
| than Bankman's.
| bob_theslob646 wrote:
| The way to determine a mark is extremely different than in
| 08' , be mindful of that. Determining that mark is an
| incredibly difficult task.
| debacle wrote:
| Somewhat completely off topic, but with interest rates
| "skyrocketing" compared to recent history, would it be feasible
| to "buy back" one's fixed rate debt? Or sensible?
| mghfreud wrote:
| Please ELI5.
| tsycho wrote:
| Interesting thought, treating your debt like a bond.
|
| If you no longer need the debt, i.e. you have the cash to pay
| it back, you could _theoretically_ loan out that cash to
| someone else at the higher current market interest rate.
| Loaning money involves credit risk of course, so practically
| this would mean buying something like higher interest paying
| Treasuries or AAA bonds. Effectively, the spread between your
| borrowed fixed rate debt and the bonds you bought are the
| _profit_ you make, the NetPresentValue of which is roughly what
| you would get if you could "buy back" the debt.
| piperswe wrote:
| That's sorta what I'm doing with my car loan - instead of
| paying extra principal, I'm putting the money into an FDIC-
| insured account that pays about twice the interest that I'm
| paying on my car loan.
| [deleted]
| lamontcg wrote:
| You mean you want to pay off 90% of the remaining principle
| today in order to "buy" the paper at the same haircut that
| another bank would be able to buy it for? Nope.
| cowsandmilk wrote:
| For companies with publicly traded debt, it is definitely
| possible. Whether it is advisable is a different question.
| rvnx wrote:
| You can do it with mortgage, go from fixed-rate to floating
| rate and vice-versa, and you pay the cost of hedging for the
| duration of the mortgage.
| dragontamer wrote:
| When you have a 10% mortgage and interest rates drop to 2%, you
| refinance. You borrow a new loan at 2%, buy out your old 10%
| loan (so you never have to deal with 10% interest rate payments
| again).
|
| If you have a 2% loan, and interest rates skyrocket to 10%, you
| absolutely do not sell your 2% loan to reup to 10%. That's just
| stupid. You keep the 2% loan and even try to slow down payments
| (if you were double-paying or otherwise cutting down principal
| before, you stop doing that).
| kgwgk wrote:
| I understand the question to be whether you can liquidate a
| 2% 20-year loan paying fifty cents on the dollar or whatever
| the fair amount is. (I guess the answer is no for the usual
| US mortgages but it could be yes for some kind of loans.)
| tills13 wrote:
| I read that the FDIC is brutally efficient and, if this is true
| and SVB opens Monday under a different owner as if nothing
| happened, this statement will certainly be an understatement.
| mertd wrote:
| It would be quite funny if JPM ends up being the owner and the
| startups who rushed to transfer their accounts presumably to
| JPM just login on Monday and click the cancel button.
| cm2187 wrote:
| Presumably they don't transfer the deposits, only the assets.
| Otherwise JPM would bid a negative amount.
| curiousllama wrote:
| I thought they were bidding negative amounts - ie the
| bidding is to find the lowest $ amount the FDIC needs to
| put in to make folks whole
| Denvercoder9 wrote:
| There's no indication at the moment that FDIC will put in
| money to make depositors whole beyond the $250K insurance
| limit.
| dkjaudyeqooe wrote:
| The FDIC is looking to sell (actually give away) the
| business whole with the minimum possible contribution,
| they aren't differentiating between deposit classes,
| unless the buyer specifies that as a part of their bid,
| which is unlikely in the case of SVB.
| gnicholas wrote:
| Yellen said:
|
| > _"Let me be clear that during the financial crisis,
| there were investors and owners of systemic large banks
| that were bailed out, and the reforms that have been put
| in place means that we're not going to do that again,"
| Yellen told CBS' "Face the Nation." "But we are concerned
| about depositors and are focused on trying to meet their
| needs."_
|
| Senator Mark Warren said:
|
| > _"The shareholders in the bank are going to lose their
| money, let's be clear about that. But the depositors can
| be taken care of," he told ABC's "This Week."_
|
| These statements tend to indicate that the government is
| not going to bail out the bank owners (shareholders of
| the bank). But they are concerned about the depositors,
| presumably because they realize that there's a risk that
| if a fairly large (top 20) bank is allowed to go under,
| many smaller banks could be at risk of a run.
|
| Source: https://www.cnbc.com/2023/03/12/treasury-
| secretary-janet-yel...
| DebtDeflation wrote:
| >the reforms that have been put in place means that we're
| not going to do that again
|
| Does that include the reforms that were removed a few
| years ago after SVB and other "regional" banks lobbied to
| have them removed from banks <$250B?
| Zetice wrote:
| Did SVB use those relaxed restrictions though? Seems like
| they could have done their treasury note purchase with or
| without those changes.
| positr0n wrote:
| I believe one of the regulations there were able to skip
| because of the $250B change is submitting to a stress
| test.
| grandmczeb wrote:
| I tried looking through the scenarios on the fed website
| - which one would have caught this specific issue?
|
| https://www.federalreserve.gov/publications/dodd-frank-
| act-s...
| Denvercoder9 wrote:
| These statements are incredibly vague and could mean
| anything. I certainly don't interpret them as that the US
| government has decided to pitch in additional money,
| because if they have, it makes a whole lot of sense for
| them to explicitly, clearly and undeniably announce that:
| the whole goal of such an action would be to aid
| confidence in the financial system, and announcing that
| the US government is standing behind it with its full
| faith and credit is the best way they have to do that.
| gnicholas wrote:
| There are not unambiguous statements, and the senator's
| statement is alone not sufficient to guarantee anything
| (he's one of 100 senators, to say nothing of the House).
| But if high level officials are making statements like
| these, it does tend to indicate that there's a
| significant chance that depositors will be looked after
| (perhaps not fully, but to some extent beyond the $250k
| FDIC limit).
| hnaccount_rng wrote:
| Which they would have been _anyways_... Seriously, the
| FDIC insures 250k$ IF and only if the banks assets are
| insufficient for _that_. In other words, as long as SVB
| has enough assets to pay out 250k$ per ~account. All the
| FDIC is going to be doing is the administration [1] of
| the distribution.
|
| Whatever assets are left beyond the first n_accounts *
| 250k$ will be distributed among the account holders with
| extra balance. Some of _that_ money will also be
| distributed tomorrow morning. So in fact all depositors
| with more than 250k$ balance will be "looked after, but
| not made whole" TOMORROW. The question remains ,IF there
| aren't enough funds to make everyone completely whole,
| what happens then. There is _zero_ indication in those
| statements, that there would be money added to the pile
| that will be generated by the auction of SVB's assets.
|
| [1] not sure if there's a fee for that, but it would be
| negligible anyhow
| mlyle wrote:
| FDIC probably will not put in _anything_ : there are
| sufficient assets to cover the insured amount.
|
| The SVB name is worth something. If FDIC can liquidate
| assets and pay 90 cents on the dollar for deposits, a
| bank who will acquire and give 95-100 cents on the dollar
| is better for everyone.
| kgwgk wrote:
| > The SVB name is worth something.
|
| Brand awareness has definitely increased a lot this week.
| mlyle wrote:
| Touche ;)
|
| It would be more accurate to say, the expertise and
| relationships that come with SVB, and the access to the
| market that SVB served... are worth something. Even if
| all of these are damaged.
| kasey_junk wrote:
| They are almost certainly not going to let the bidder leave
| the deposits. The way the fdic actually protects deposits
| most of the time is by selling the business to another
| bank, so that's what this auction is for.
| fbdab103 wrote:
| I imagine many businesses are going to diversify banks in the
| near future so they can always make next month's rent.
| more_corn wrote:
| FDIC promised that the bank (under a new name) will open for
| business Monday morning. I'd bet $250,000 on it.
| edgoode wrote:
| Could Microsoft, Apple, Google, or Amazon place a bid
|
| Strategically, a consumer or cloud co w/ a banking arm might make
| a great strategic position. And the new relationships with the
| customer base of SVB could accelerate the acquirer
|
| Not to mention all the bundling..
| drdec wrote:
| I doubt it. Part of the point of the exercise is to calm the
| rest of the banking market. Letting an inexperienced (re
| banking) company take over will increase the uncertainty.
| chiph wrote:
| Apple had $51bn in cash at the end of 2022. They could easily
| raise whatever additional funds needed to submit a winning bid.
| But I don't see them wanting to own a bank. They already have
| financing options for people to buy their hardware, and Apple
| Cash is working fine with whatever level of regulation it has.
| xyst wrote:
| I think they need to be a member of the FDIC to even make a
| bid. But even if they did not, I doubt these companies would
| want to be regulated under banking laws or setup the
| infrastructure to do so. There's a reason why these companies
| establish "partnerships" with well known banks (ie, Apple x
| Goldman Sachs). They are simply not setup to deal with the
| regulation. It's better to farm it out to a well established
| bank and let them take the hits from violating banking laws at
| all levels (ie, state vs federal vs international).
| notmindthegap wrote:
| let's start a DAO to buy it
| jedberg wrote:
| Why in the world would you want to own the bank? Whoever is
| buying it is doing so to get the customer list. The assets
| aren't really worthwhile given that they will all need to be
| sold to cover the depositors, given that if they opened as
| DAOBank on Monday everyone would pull their money out.
|
| The only case I see of not having a run on the remaining
| balances is if someone like Chase buys them.
| fbdab103 wrote:
| >Whoever is buying it is doing so to get the customer list.
|
| Not a bank or in the financial sector, but this makes no
| sense to me. It is likely fairly easy to get the list of VCs
| who used SVB. If nothing else, startup businesses which SVB
| catered to are _significantly_ less appealing than they were
| one to two years ago. What fraction of those clients required
| low interest rates to keep the business viable?
| paxys wrote:
| It's easy to get the list. It's not easy to get all of them
| to move their assets over to your bank. When you buy the
| bank the assets are yours automatically. They can of course
| choose to then move it out, but why would they?
| fbdab103 wrote:
| Putting all of your financial assets in one institution
| was just proven to be a liability?
| littlestymaar wrote:
| > but why would they?
|
| Why would they not?
| paxys wrote:
| Because depositors have no reason to get their money out
| of Chase and into another regional bank on the brink of
| failure.
| PeterisP wrote:
| Because the hypothetical acquirer would have not only
| their assets but also all their other products - loans,
| credit cards, all the established payments to/from their
| accounts, etc. which are harder to switch.
| notmindthegap wrote:
| it was a joke, reference to the DAO that tried and failed to
| buy the constitution at auction
| furyofantares wrote:
| > Whoever is buying it is doing so to get the customer list.
|
| And to prevent contagion, I'd guess? Or do you not see it
| that way?
| jedberg wrote:
| Yes, to an extent it's in the big bank's best interests to
| restore faith in the banking system. But mostly that's up
| to the government.
|
| If Treasury comes in and says "we will make all depositors
| whole", that pretty much ends the contagion right there.
| dylan604 wrote:
| it's the banking version of acquihire.
|
| Bank CEO: "We want to get more tech biz customers, but we
| don't want to start from scratch with high risk startups."
|
| FDIC: "We have this bank with a lot of established companies"
| throw_pm23 wrote:
| Couldn't someone with a lot of cash buy them, pay back the
| depositors without having to sell assets, then hold the
| assets until maturity, and then make a profit (presumably
| having bought them at a discount)? As far as I understand,
| the nominal value of assets still exceeds the obligations?
| PeterisP wrote:
| For the big SVB assets, the outcome of "holding the assets
| until maturity" is the price at which you can sell these
| assets; someone who intends to do that will buy these
| assets at a rate where they roughly break even - they're
| pretty much a commodity, so the auction price is close to
| the value.
|
| But buying long-term assets at some small discount (e.g.
| 10%) and holding them to maturity would not make a profit -
| the nominal value of these assets + the interest on the
| (low!) fixed interest rate is far lower than the interest
| rate you can get elsewhere; if the difference between the
| interest rate that SVB had fixed and the current market
| rate is ~2% (which seems roughly in the ballbark) then a
| crude estimate is that the discount has to be 20%-ish if
| there's 10 years remaining until maturity and 40%-ish if
| there's 20 years remaining... so that's appropriately
| reflected in the (lowered) price those assets can fetch.
| The nominal value is irrelevant as future money is worth
| much less than current money.
| gruez wrote:
| >As far as I understand, the nominal value of assets still
| exceeds the obligations?
|
| AFAIK that number was based on the book value (ie. how much
| it cost for the bank to buy the bonds/MBS), not the current
| fair market value. Other sources say that SVB is in the
| hole when using current fair market value for their assets.
|
| >So big was this drawdown that on a marked-to-market basis,
| Silicon Valley Bank was technically insolvent at the end of
| September. Its $15.9 billion of HTM mark-to-market losses
| completely subsumed the $11.8 billion of tangible common
| equity that supported the bank's balance sheet.
|
| https://www.netinterest.co/p/the-demise-of-silicon-valley-
| ba...
| seydor wrote:
| Q why didn't SVB limit withdrawals and transfers after this
| started. Could they?
| bradleyjg wrote:
| No. A bank that refuses a demand on a demand deposit account is
| by definition in default.
| seydor wrote:
| Unless it's capital controls
| tills13 wrote:
| I'm sure a bank limiting withdraws would have made matters even
| worse.
| mikepurvis wrote:
| To be fair, though, that's kind of what's ended up happening
| for everyone anyway-- at least the customers with >$250k on
| deposit.
| Animats wrote:
| They could have limited withdrawals _before_ it started, but
| not after. Banks used to offer savings accounts, where the bank
| could impose a delay on withdrawals. That delay was once 30-60
| days, then 7 days, and now it 's mostly gone. This allowed
| small banks time to sell off some assets in the event of a
| sudden increase in withdrawals. In exchange for that, savings
| accounts paid higher interest. This was part of the dull and
| boring banking system designed in the 1930s.
|
| See "Savings and Loan Crisis" for how that ended.[1]
|
| [1] https://en.wikipedia.org/wiki/Savings_and_loan_crisis
| seanhunter wrote:
| My understanding is this isn't a "run on the bank" situation,
| they were too successful growing their deposit book and
| couldn't grow their loan assets fast enough to keep pace. So
| they bought a lot of MBS so they at least were earning _some_
| yield with which to pay interest on their deposit liabilities
| but took heavy losses when rates moved against them so were
| inadequately capitalised. They tried to raise additional
| capital and a couple of key miscommunications in that process
| really spooked the market and they suddenly collapsed.
| ec109685 wrote:
| SVB was offering above market interest rates though:
|
| According JPM: "At the end of 2022, SIVB only offered 0.60%
| more on deposits than its peers as compensation for the risks
| illustrated below; in 2021 this premium was 0.04%."
| dehrmann wrote:
| You can find FDIC-insured savings accounts paying 4%, and
| bank interest rates are all over the places right now, so I
| wouldn't read into .6%.
|
| Calling out the 2021 number is disingenuous because the fed
| funds rate in 2021 was essentially 0%. Its's 4.57% right
| now. You're comparing kumquats and grapefruit.
| ec109685 wrote:
| It shows they were being aggressive with their
| investments compared to parking things in the most safe
| vehicle possible:
| https://am.jpmorgan.com/content/dam/jpm-am-
| aem/global/en/ins...
| ru552 wrote:
| $40b was withdrawn Friday morning. If that's not a run, I
| don't know what is.
| twelve40 wrote:
| the run was a _consequence_ of the bank 's mismanagement,
| not the cause
| ummonk wrote:
| Without the run there is a decent chance that the bank
| would have been able to complete its stock offering,
| recapitalize, and remain in operations despite past
| mismanagement. So while information about the
| mismanagement is what caused observers to trigger a run
| on the bank, it was the run itself that did it in.
|
| Now there is risk of contagion where better managed
| regional banks are also at risk of suffering runs on the
| bank.
| twelve40 wrote:
| sure, a restaurant that serves rotten food could have
| fired the chef and reinvented itself if it wasn't for all
| the pesky customers who stopped going there
| fbdab103 wrote:
| This is not a Bitcoin Exchange where the founders have the
| freedom to do whatever they want.
| seydor wrote:
| It crashes like a crypto exchange though
| rodgerd wrote:
| FTX depositors would be over the moon if there was a
| promise that they were going to get a quarter million of
| their holdings back on Monday, with an unknown amount back
| in the next few weeks, and likely be "floated" some
| proportion of their holdings in the interim.
| JumpCrisscross wrote:
| > _crashes like a crypto exchange_
|
| Where depositors get up to $250k the next business day and,
| possibly, up to 50% of the rest within a week?
| latchkey wrote:
| Just a friendly reminder that COIN is a public company.
| dragontamer wrote:
| I don't think you're allowed to limit withdrawals on savings
| accounts or checking accounts. (Beyond the 6x monthly limit on
| savings)
|
| Money Market accounts are allowed to have limits (and haircuts)
| applied. Etc. etc. As a bank, they'd have different accounts
| with different rules on each kind of account. But Money Markets
| aren't allowed to be mixed with the long-term treasuries that
| SVB were holding.
|
| So it really depends on the mix of accounts, various
| regulations and such.
| fbdab103 wrote:
| The Money Market one probably comes as a surprise to many
| people (it did to me). I believe the financial industry
| lobbied so that the day-to-day Money Market fluctuations
| could be hidden from the user so that clients thought they
| were more stable than reality.
| TMWNN wrote:
| > (Beyond the 6x monthly limit on savings)
|
| Hasn't been a thing for three years.
| notfromhere wrote:
| Federal law
| colechristensen wrote:
| They could not change the terms on accounts, no.
| chrisacky wrote:
| Are a book of assets that easily accessed to be able to even
| create a portfolio of interest?
| voisin wrote:
| Absolutely. They would have a digital record of everything
| available in real time. If they didn't then they were never a
| real bank.
| fbdab103 wrote:
| The comparison would be FTX where they handed the auditor a
| pile of Excel spreadsheets and some vague, "I thought they
| were in last week's email" kind of accounting.
|
| Real banks have real controls and want to know where every
| fractional cent (blast, my Superman 3 scheme is foiled in the
| crib) is at any moment.
|
| Edit: minor English goof
| compiler-guy wrote:
| Upvote for Superman 3 reference. For those who don't get
| it:
|
| https://youtu.be/N7JBXGkBoFc
| loeg wrote:
| Yes? Of course they know what the assets are.
| bostik wrote:
| Yes.
|
| Every big bank[x] has to submit daily risk reports. If those
| reports are late by more than (IIRC) 48h, they feel the
| consequences. Then there are end-of-week, end-of-month, and
| end-of-quarter reports too.
|
| The daily reports may take a couple of hours to run. Spread
| across a compute grid of few thousand cores. I work for a
| company that provides a quant analysis and computation platform
| for financial institutions. We tend to skip our weekly client-
| facing code promotion at the end of quarter, to make it
| absolutely sure that there are no unexpected changes that could
| mess up their gargantuan report runs.
|
| [x]: Let's omit the nuance for once, ok?
| blackoil wrote:
| Given it is fairly common for FDIC. What is the history in such
| cases? Do depositors always get all money back or they have to
| take some haircut?
| Denvercoder9 wrote:
| They publish all historic payouts for closed banks on their
| website: https://closedbanks.fdic.gov/dividends/
|
| From a quick look at a random sample, it seems most end up with
| about ~70% paid out, but there is quite some variance.
| kasey_junk wrote:
| That's the list for all creditors, not depositors. Almost all
| deposits get transferred to another financial institution. It
| will be listed on the failed bank report.
| paxys wrote:
| Worth noting though that this list covers everything from
| cases of incompetence and mismanagement to outright fraud.
| It's relatively easy to recover money if it is tied up in
| T-bills. Not so if the bank owner decided to go buy a yacht
| with customer funds.
| sql-spy wrote:
| In most cases depositors recover 90% or higher.
|
| Insured deposits are paid on first day the bank opens. More
| than 50% of uninsured deposits are paid within a week. Another
| 20% or so gets paid within a year or sooner in quarterly
| installments. Remaining amount gets paid in yearly installments
| and in all cases was paid within 3 years.
|
| Haircut is guaranteed in this political climate since there is
| no appetite for a bailout. At least not for SVB. The later ones
| could be bailed out but SVB is a goner.
| Denvercoder9 wrote:
| _> More than 50% of uninsured deposits are paid within a
| week. Another 20% or so gets paid within a year or sooner in
| quarterly installments. Remaining amount gets paid in yearly
| installments and in all cases was paid within 3 years._
|
| The data does not support these statements. E.g. for a random
| bank I selected on the FDIC site [1], "American National
| Bank", uninsured depositors got paid 77.8% in three
| installments: the first 57% two weeks after bank closure,
| 7.4% after three years and the last 13.3% after five-and-a-
| half years.
|
| [1] https://closedbanks.fdic.gov/dividends/
| kasey_junk wrote:
| https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
|
| American national had its deposits transferred. The
| dividend payments were to other creditors.
| dkjaudyeqooe wrote:
| > Haircut is guaranteed
|
| Not if someone buys it. Unless a haircut is part of the bid,
| which seems unlikely. No point having 97% of your new
| customers pissed off at you.
| dh2022 wrote:
| But where will the money that pays un-insured deposits come
| from? SVB's assets are worth less than its liabilities at
| this point....
| barnabee wrote:
| If SVB is acquired, the acquirer also takes on the
| liability to depositors (most likely all of it, but a
| haircut could be negotiated) so everyone should get
| everything back (unless a haircut is negotiated) and
| handling the shortfall is a cost to the acquirer. Perhaps
| they believe the future value of the business justifies
| that, perhaps they don't and the government pushes them to
| do it anyway.
|
| If it's not acquired depositors will take a haircut (get
| paid less) in the unwinding process so that the amount paid
| out doesn't exceed the assets available.
| loeg wrote:
| A buyer might be willing to pay a premium (above the assets
| alone) for the business, which was worth $15.5B to
| shareholders as recently as Wednesday. Levine's column on
| this failure is great, you should check it out:
| https://archive.is/cN3CD .
| searealist wrote:
| > Haircut is guaranteed in this political climate since there
| is no appetite for a bailout. At least not for SVB. The later
| ones could be bailed out but SVB is a goner.
|
| SVB stock and bond holders will lose everything but it is far
| from guaranteed that depositors will take a haircut.
| lamontcg wrote:
| There's really no good history for this kind of a case.
|
| Washington Mutual was a bigger failure, but there was another
| lender who had already attempted to take it over, and had done
| due diligence, and Washington Mutual had a large amount of
| unsecured debt which allowed those lenders to take the hit and
| left depositors completely unscathed.
|
| IndyMac was a smaller bank but it was over $10B in assets and
| the FDIC had to setup a Bridge Bank because the attempt to
| auction it off failed, so the FDIC had to impose a loss of 14%
| of total deposits on the depositors.
|
| > Since 2007, the FDIC has served as receiver for over 525
| banks. Only 9 of these failed banks had assets over $10
| billion. Thus, the overwhelming majority, over 98 percent, had
| assets under $10 billion.
|
| The FDIC routinely liquidates banks under $10B. What we have
| here is not routine, and is Washington Mutual-sized. The
| smoothness of Washington Mutual being taken over though was
| probably not something you can expect to rely on.
|
| https://www.fdic.gov/news/speeches/2019/spoct1619.html
| rvnx wrote:
| Instead of paying with cash, couldn't they pay using shares of
| SVB ? SVB becomes Silicon Valley Bank, a bank for startups, owned
| by startups.
| zacharyvoase wrote:
| Because shares in an entity that owes more than it owns are
| worth zero.
| thuridas wrote:
| A company has different values for different customers
| depending on what they are going to do with it.
|
| The software and customers would have some value. If they can
| provide digital capabilities to a traditional bank it will
| certainly be a plus against the negative in financial
| products.
| PeterisP wrote:
| All of that has some value, but this value will be taken
| away from the shareholders, sold to someone, and the
| proceeds used to pay back part of the liabilities. The
| shares are still worth zero because they have no claim on
| that value.
| rvnx wrote:
| If they find a way to agree with the creditor to exchange the
| cash against shares, they won't owe anything. These shares
| are backed by long-maturity treasuries, MBS and future
| business of the bank.
|
| Then the new owners of this bank, can decide whether to
| liquidate long-maturity treasuries at a loss, or raise new
| capital, or just wait it out.
| [deleted]
| dragontamer wrote:
| Depositors and bondholders get the money first.
|
| The reason SVB collapsed is because there's not enough
| treasuries to possibly even pay depositors, let alone
| bondholders or shareholders. If there were enough
| treasuries to pay shareholders, then the bank run wouldn't
| have happened in the first place. (The bank run on Thursday
| was caused by the sudden realization that there might not
| be enough money at the bank).
|
| A buyout / successful auction is the best case scenario. If
| some bank out there is willing to buy SVB and make all
| their depositors whole again, then win/win for everybody.
| rvnx wrote:
| The problem is that they invested in 10 years duration
| bonds, instead of 0-3 months or 1 year duration.
|
| This essentially means, that if interest rates raise,
| then temporarily (the time of the duration of the bond)
| the bond may be worth less because there are new bonds
| which are more attractive to the investor.
|
| Once the bond matures, then the full sum is returned to
| the holder of the bond.
| pseudo0 wrote:
| That assume that the bank can keep their depositors while
| offering uncompetitive interest rates on deposits. For
| example, a bank that bought 3-12 month t-bills could
| offer depositors 4% interest on their savings accounts
| and still make a profit. Why would anyone leave their
| deposits with SVB for the next ten years if they can only
| afford to offer 1.5%, because they made a bad bet on long
| duration bonds?
|
| Sure, banking has a fair amount of inertia, but
| eventually people realize that they are leaving FDIC
| insured money on the table.
| toast0 wrote:
| > Why would anyone leave their deposits with SVB for the
| next ten years if they can only afford to offer 1.5%,
| because they made a bad bet on long duration bonds?
|
| Chase is still offering 0.01% on savings accounts, and
| somehow has deposits. 1.5% is generous compared to that,
| even though it's much less than you can get with a little
| shopping around.
| zhte415 wrote:
| The interest rate is the opportunity cost of investing
| elsewhere. Why would someone buy a bond at a 1% discount
| when they can buy the exact same bond at a 2 discount?
|
| Aside from not making large unmatched unhedged yield
| curve bets, not marking portfolio prices to market was a
| problem for SVB.
| dragontamer wrote:
| Sure, but $46 Billion left the bank on Thursday.
|
| The bank run already happened, so the bank has to sell
| those bonds for a loss to meet its obligations to their
| depositors. Because of the interest rate changes, they
| are forced to sell those 10Y and 30Y bonds for a 20% loss
| (or greater).
|
| As such, the bank is underwater. FDIC is looking for a
| buyer who is willing to lose a little bit of money in the
| short term, but maybe gain some customers in the long
| term.
|
| ----------
|
| There's no time to wait 10 Years. The bank needed the
| money 3 days ago.
| PeterisP wrote:
| The bond is worth less not temporarily but permanently.
| The (low) market price of such a bond is appropriate - it
| might rise (if the current interest rates fall), but it
| might as well fall even more (if the current interest
| rates rise even higher). Sure, in nominal dollars you get
| the 'full' amount back after xx years, but a 203x-dollar
| is worth less than 2023-dollar, and the market price of
| that bond reflects the markets' current best estimate on
| _how much less_ that future dollar is worth.
|
| You can't make whole the current depositors by saying
| that they'll get the same quantity of 203x-dollars
| (because you owe them 2023-dollars which are worth more),
| you can't make whole the current depositors by trading
| the future claims on these 203x dollars (i.e. bonds) to
| someone else because the price you can get is not enough
| to make them whole; and you can't make whole the current
| depositors by paying them back in year 203x their dollars
| with market-rate interest because you don't have enough
| assets to cover that market-rate interest, only the low,
| low interest that SVB fixed last year or before.
| modeless wrote:
| This is exactly what Bitfinex did. Funny to see the same
| solutions proposed for actual banks.
| melenaboija wrote:
| What was the equivalent to the treasuries in this
| comparison?
| modeless wrote:
| Their remaining assets after they were hacked. They gave
| everyone's account a 36% haircut and issued a kind of
| equity to "cover" the rest. I guess it ended up working
| for them because they're still around, but personally I
| wouldn't touch Bitfinex with a ten foot pole.
|
| And I think I read that SVB's losses this week exceeded
| their cumulative profits since inception so it seems
| likely that even 100% ownership of the company wouldn't
| be valuable enough to make their customers whole.
| rvnx wrote:
| It's not a good solution to give pieces of equity and/or
| claims on future cash distributions, but it sounds better
| than forcing to liquidate everything in a rush
| immediately.
|
| Another way could also be to apply when you are
| withdrawing the money:
|
| 1st yr: 10% withdraw fee
|
| 2nd yr: 9% withdraw fee
|
| 3rd yr: 8% withdraw fee
|
| etc
|
| with the rate adjusting down every year.
| modeless wrote:
| Or, you could liquidate everything now and give people
| cash today that they could choose to put into treasuries
| themselves, earning a rate much better than your proposed
| lockup fee schedule. That sounds much faster and simpler
| and ultimately better for everyone.
| Spooky23 wrote:
| It does owe something. They have a cash flow problem,
| because the bank made a poor risk management decision and
| when big money people like Thiel figured it out, they had
| their minions and companies run the bank. If you have $100
| in cash and a $1M house and you owe me $10k, I'm gonna put
| a lien on your home and liquidate it for my money.
|
| Now the people who missed the memo are crying about it.
| Guys like Sacks have taken to Twitter to cry and whine
| about how they are like poor farmers or whatever.
|
| The reality is the FDIC is good at what it does, and it's
| probably best to wait until tomorrow before getting hot and
| bothered about it. If you want to get angry, ponder how the
| people who coordinated the bank run got the information
| used to trigger it.
| stanleydrew wrote:
| What incentive does someone like Thiel have to induce a
| run at SVB?
| Spooky23 wrote:
| It's not an incentive thing. It's a major player creating
| a panic.
| toast0 wrote:
| Primarily, his portfolio companies have an incentive to
| have access to their deposits.
|
| He probably gains reputation by advising people to get
| out of a bank that fails. Although he probably advised
| them to use it in the first place.
| dheera wrote:
| It's worth what the market deems it's worth, if the SEC
| doesn't keep dipping their hands in the market and halting
| trading, Reddit would have a chance to bid up the stock to
| some nonzero value.
|
| It's not like the valuations of any other tech stock are
| based on fundamentals either.
| colechristensen wrote:
| Depends on what the market is valuing it today.
|
| My prediction is that the result of the auction will be a
| merger whereby SVB stockholders will be compensated in stock
| of the acquiring bank valued at a few dollars per share down
| from ~$300 a month ago. Depositors made whole, stockholders
| lose 90-99%, creditors get paid. The purchase likely
| sweetened by a sizable cheap Fed loan or guarantee, or maybe
| the Fed buying some of the distressed assets at nominal
| value.
| paxys wrote:
| "My startup's entire cash position is gone and I can't make
| payroll next week, but hey at least I get these worthless
| shares of a failed company!"
|
| Although these are all startup founders and VCs, so maybe the
| strategy will actually work.
| rvnx wrote:
| These shares are not worthless at all if the bank has a
| future. SVB's main issue is that you have to wait for the
| treasuries to get back to the par value once they mature.
|
| If SVB distributes shares of itself in prorata of the
| liabilities that they have toward their customers, then
| customers would essentially have majority of voting rights,
| and they can decide on what to do.
|
| They can vote a resolution to get physical delivery of the
| underlying bonds, and individually decide to wait it out
| and/or sell portions of bonds on the market progressively
| (when they need cash).
| dragontamer wrote:
| SVB's main issue is that their depositors are leaving, and
| they have to pay their depositors _RIGHT NOW_, as this
| ongoing bank run occurs.
|
| They cannot afford to wait. Depositors have higher priority
| than shareholders, so any shareholder equity is obviously
| wiped out and $0. Such is the curse of seniority: the
| depositors have a stronger legal priority on those bonds
| than the shareholders, so the depositors get paid first...
| and the share holders are paid whatever is remaining
| (probably $0)
| cragfar wrote:
| FDIC took over the bank on Friday. There's no going back
| from that, the company is over and shareholders are wiped
| out.
| Denvercoder9 wrote:
| > and individually decide to wait it out and/or sell
| portions of bonds on the market progressively
|
| You don't need SVB to be an ongoing concern to do this. If
| SVB is liquidated and its depositors are paid from that
| sale, they can just buy back those same bonds on the open
| market for the same price if they want to wait them out.
| rvnx wrote:
| One issue with this approach with SVB liquidating
| everything is that suddenly a lot of bonds are going to
| be sold, and this creates a big risk to have depressed
| assets prices, and prices of the bonds spiraling down
| further if there are no buyer on the other side.
|
| This is what happened during the Kerviel scandal in
| France, when Societe Generale tried to unwind the risky
| positions of a trader.
|
| Unless the government steps in and decides to purchase
| these bonds that SVB is selling and add them on its
| balance sheet... Which essentially would put the burden
| on the random non-Silicon Valley guys who didn't ask for
| anything (and it's not fair).
|
| The other thing, is that many companies don't need 100%
| of their cash. They may just use SVB as storage, and
| waiting for the bonds to mature may be totally fine
| rather than take a loss.
|
| Also, during this interval that they have to wait. If
| capital is needed, VCs may have better capabilities to
| raise capital at good conditions, rather than a failed
| bank.
| [deleted]
| ejb999 wrote:
| equity holders will almost certainly be wiped out, so I
| believe the share are now worthless.
|
| (the cramer curse.)
| paxys wrote:
| The bank's shares were at $270 on Wednesday, $106 on
| Thursday and $34 on Friday before trading was finally
| halted and feds took over. So under standard definitions of
| "worth", there is approximately zero in this company. It
| does not have a future.
| littlestymaar wrote:
| Given that their liabilities excess their assets by a few
| billions, there's even less than zero in there.
| paxys wrote:
| Well good thing shareholders aren't on the hook for
| those, and the floor value of the shares is zero. Imagine
| a world where that wasn't the case though.
| jakeinspace wrote:
| Well, that world would be closer to a true free market.
| The legal protection of limited liability makes modern
| stock markets work, but it is absolutely a massive
| benefit given from the working+middle class towards
| investors (of course there is an overlap between those
| groups). It's my first argument any time I hear someone
| complain about capital gains tax being double taxation on
| top of corporate taxes.
| rvnx wrote:
| It's called Switzerland, where shareholders of Private
| Banks used to have unlimited liability (now it has
| changed).
| sigstoat wrote:
| turning depositors, probably the most senior possible form of
| debt, into shareholders, the least senior form of debt, is a
| garbage deal that nobody in their right mind would take.
| ec109685 wrote:
| That's what they are doing: " The FDIC will pay uninsured
| depositors an advance dividend within the next week. Uninsured
| depositors will receive a receivership certificate for the
| remaining amount of their uninsured funds. As the FDIC sells
| the assets of Silicon Valley Bank, future dividend payments may
| be made to uninsured depositors."
| rvnx wrote:
| Interesting finding, thank you.
| h2odragon wrote:
| SBF presumably wasn't allowed to bid.
___________________________________________________________________
(page generated 2023-03-12 23:01 UTC)