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Emergency bridge loan for SVB customers

brex.com

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Re: Emergency bridge loan for SVB customers

#21

Post by toomuchtodo »

DeepYogurt wrote: post #12
bluepizza wrote: post #9

Earlier quoted context omitted.

The FDIC threshold is a minimum guarantee. If they are able to negotiate assets into liquidity, they will be able to pay more than the minimum guarantee.

so it sounds like a gamble on what brex expects that actual return to be

It's a gamble not only on what's recoverable but also future lifetime value of newly acquired customers from this effort (remember, there are a bunch of ventures looking for a new bank now that their banking provider is gone). Public service meets rapidly evolving growth marketing campaign. Can't fault Brex, there is no downside to anyone except them (correction: it appears a third party is taking the credit risk per gpm, even better for Brex as they're simply facilitating the lending ops and aren't exposing themselves to the credit risk). Kudos.

Re: Emergency bridge loan for SVB customers

#23

Post by [deleted] »

gpm wrote: post #11
nostrebored wrote: post #6

Earlier quoted context omitted.

97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.

Yes, but the assets of the balance sheet exceed the liabilities by a reasonable percentage. The vast majority of what will be paid out won't be from the FDIC's funds, it will be from those assets.

[deleted]

Re: Emergency bridge loan for SVB customers

#24

Post by gpm »

toomuchtodo wrote: post #21
DeepYogurt wrote: post #12

Earlier quoted context omitted.

so it sounds like a gamble on what brex expects that actual return to be

It's a gamble not only on what's recoverable but also future lifetime value of newly acquired customers from this effort (remember, there are a bunch of ventures looking for a new bank now that their banking provider is gone). Public service meets rapidly evolving growth marketing campaign. Can't fault Brex, there is no downside to anyone except them (correction: it appears a third party is taking the credit risk per…

> Can't fault Brex, there is no downside to anyone except them.

Not actually clear who is taking the downside

> This credit line is funded by 3rd-party capital (and not Brex directly)

Re: Emergency bridge loan for SVB customers

#25

Post by 462436347 »

The VCs collectively orchestrated a bank run that destroyed a bank that serviced them for 40 years, when they should have instead cooperatively organized an LTCM-style consortium bailout for it, and helped them raise capital. The selfishness and short-sightedness of VCs never ceases to impress.

Re: Emergency bridge loan for SVB customers

#26

Post by joefigura »

nostrebored wrote: post #6
gpm wrote: post #3

Honestly this makes a ton of sense. The FDIC will be returning most (or all) of the deposits in SVB, so the debt is reasonably safe (at least as far as debt that startups take on ever is). Whoever is funding this is probably not taking on all too much liability, and if they're heavily invested in the startup ecosystem could easily be making enough back from this indirectly to make it worthwhile. For brex this has to…

97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.

Brex could offer loans up to 25% of the borrower's funds stuck in SVB. As long as depositors receive at least 25 cents on the dollar, the loans would be paid back in full, and the borrower would have gotten significant working capital in the interim.

SVB's carcass still has significant assets, so Brex can set that % number based on what they know about SVB's state, to make the loans almost risk-free.

I'm not a banker and have no idea if this is actually what Brex is offering. That public page doesn't discuss terms at all, which makes sense given the chaos. But there's certainly ways to structure these loans without much risk.

Re: Emergency bridge loan for SVB customers

#27

Post by SirensOfTitan »

gpm wrote: post #16
Blackthorn wrote: post #10

Earlier quoted context omitted.

Solvent how? Their 80 billion of 10 year MBS's are sitting on a tremendous loss.

> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Per the FDIC

From what I understand, the assets were allowed to be on the books at face value, under the assumption they would be held to maturity, but they're worth significantly less on the open market.

Re: Emergency bridge loan for SVB customers

#28

Post by ttsgeysygd »

nostrebored wrote: post #6
gpm wrote: post #3

Honestly this makes a ton of sense. The FDIC will be returning most (or all) of the deposits in SVB, so the debt is reasonably safe (at least as far as debt that startups take on ever is). Whoever is funding this is probably not taking on all too much liability, and if they're heavily invested in the startup ecosystem could easily be making enough back from this indirectly to make it worthwhile. For brex this has to…

97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.

Word is that 50% of assets already sold by FDIC. Which will allow a large chunk of each account to be unfrozen by Wed so companies can make payroll. FDIC is not fucking around. Hat tip to them.

Balance to take 2-3 months. Will require an actual application and paperwork.

Re: Emergency bridge loan for SVB customers

#29

Post by mdorazio »

gpm wrote: post #11
nostrebored wrote: post #6

Earlier quoted context omitted.

97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.

Yes, but the assets of the balance sheet exceed the liabilities by a reasonable percentage. The vast majority of what will be paid out won't be from the FDIC's funds, it will be from those assets.

Those assets cannot plausibly be sold for their currently stated value in the near-term. That's the whole reason SVB got into this mess...

Re: Emergency bridge loan for SVB customers

#30

Post by SirensOfTitan »

462436347 wrote: post #25

The VCs collectively orchestrated a bank run that destroyed a bank that serviced them for 40 years, when they should have instead cooperatively organized an LTCM-style consortium bailout for it, and helped them raise capital. The selfishness and short-sightedness of VCs never ceases to impress.

I think you massively underestimate how hard it is to coordinate under these kinds of conditions. Plenty of startups are going to be unable to make payroll, which can pierce the corporate veil in CA, it's not a situation where cooperation is the first thought.
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