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Emergency bridge loan for SVB customers

brex.com

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Re: Emergency bridge loan for SVB customers

#121

Post by IG_Semmelweiss »

gpm wrote: post #119
IG_Semmelweiss wrote: post #115

Earlier quoted context omitted.

I agree with your assesment but the impairment in those long maturity assets were not 50% to begin with, so the realized losses couldn't be as high. Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better…

> Brex's offer is collaterized up to 25 cents per dollar. Do you know this? That's a number I (and some other posters) pulled out of a hat as a reasonable thing to do, but I don't think any of us had any sources for it?

im sorry, im just repeating what was said. i dont know it. i misunderstood that item to be a fact

Re: Emergency bridge loan for SVB customers

#122

Post by fnordpiglet »

tekla wrote: post #114
fnordpiglet wrote: post #108

Earlier quoted context omitted.

No, it’s not. It couldn’t liquidate assets fast enough to cover a run on the bank. But assets exceed liabilities substantially. What you’ll see is a line of credit issued that props up withdrawals as assets are liquidated until the bank stabilizes and it’ll reemerge under a new charter.

https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP... California has declared it insolvent. It literally by definition is now.

No, it’s not. SBV was unable to meet its obligations and was insolvent. Then the FDIC stepped in and a part of its function will be to ensure liquidity. So it’s is therefore not insolvent. The FDIC won’t take a loss so it may become insolvent again and might have to resort to insurance to make depositors partially whole. The fact that it has a) access to sufficient credit liquidity via governmental ownership b) assets to collateralize that credit means it isn’t insolvent any more. If they had secured emergency credit lines it would be still a private institution, but functionally that’s irrelevant if you have assets of functional business relationship with SVB. Beyond an operational delay as they reopen business next week it’s functionally a no-op. This stuff isn’t cut and dry, and it’s all complex, but I think the practical outcome of this is a big nothing burger for anyone but the principals of SVB.

Re: Emergency bridge loan for SVB customers

#123

Post by fnordpiglet »

IG_Semmelweiss wrote: post #117
fnordpiglet wrote: post #108

Earlier quoted context omitted.

No, it’s not. It couldn’t liquidate assets fast enough to cover a run on the bank. But assets exceed liabilities substantially. What you’ll see is a line of credit issued that props up withdrawals as assets are liquidated until the bank stabilizes and it’ll reemerge under a new charter.

it is insolvent. It sold assets at firesale. That wiped out SVB's entire equity!! If SVB literally had a way to hack the time-space continuum and wait out for asset prices they own , to stabilize ("maturity") , or to pay them back in full ( a loan)...SVB would STILL likely lack enough funds to pay back their deposits.

That hack of space time is called “credit,” and they can collateralize their entire liability sheet if they had a credit willing to lend them massive amounts of cash on their illiquid assets. The FDIC owns them now and has access to credit. As a business they’re fine.

The issue wasn’t the selling of assets, it was the panic that their actions took to prop up a balance sheet hole. It’s not like Enron or Lehman.

Re: Emergency bridge loan for SVB customers

#124

Post by JackFr »

astura wrote: post #110
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…

>The FDIC will be returning most (or all) of the deposits in SVB 85% of accounts weren't FDIC insured https://time.com/6262009/silicon-valley-bank-deposit-insuran...

Likely that Brex will loan you up to the max of your closing balance and 250K (the FDIC limit). Note that you need to link your account (so they can see your balance and transactions) to apply.

Re: Emergency bridge loan for SVB customers

#125

Post by JackFr »

rattray wrote: post #78
anonu wrote: post #67

Earlier quoted context omitted.

Over exposed to US treasuries? I don't think anyone has put those words together before. It's like saying they were over exposed to cash. You're saying a bank run occurred because they had a duration mismatch on US government debt where maturities were less than 1 year. I don't buy that explanation at all...

It was t-bonds of 10y+ maturity

T-Bills - 1w-1y

T-Notes - 2y-10y

T-Bonds - 20y-30y

Re: Emergency bridge loan for SVB customers

#126

Post by fairity »

ttsgeysygd wrote: post #28
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.

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.

Source?

Re: Emergency bridge loan for SVB customers

#127

Post by mlyle »

IG_Semmelweiss wrote: post #115
eek2121 wrote: post #47

Earlier quoted context omitted.

Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to se…

I agree with your assesment but the impairment in those long maturity assets were not 50% to begin with, so the realized losses couldn't be as high. Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better…

> Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better).

Depends upon how much was liquidated and already went to paying out fleeing customers at 100% of deposits. The average haircut could be 30%, but late to move depositors could have it worse (this is why you participate in a run on the bank).

Re: Emergency bridge loan for SVB customers

#128

Post by Dylan16807 »

anonu wrote: post #67
eek2121 wrote: post #47

Earlier quoted context omitted.

Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to se…

Over exposed to US treasuries? I don't think anyone has put those words together before. It's like saying they were over exposed to cash. You're saying a bank run occurred because they had a duration mismatch on US government debt where maturities were less than 1 year. I don't buy that explanation at all...

Let's say you're a bank. You have $1B in deposits. You use it to buy bonds that will be worth $1.1B in 2030. All good so far.

Then the government starts selling those bonds a lot cheaper. To buy the same bonds you have today would only cost $900k.

Even though the 2030 value of those bonds is the same, the 2023 value just plummeted. (And they will gain more per day to eventually make up the difference.)

When your customers demand their money, you have to give them 2023 dollars.

A bond that you can redeem early has the safety of cash here. A bond that you can't redeem early does not.

Re: Emergency bridge loan for SVB customers

#129

Post by ummonk »

bryfb wrote: post #72
ummonk wrote: post #56

Earlier quoted context omitted.

They had 45 billion in withdrawals before they ran out of liquidity and were taken over by FDIC, so that analysis would appear to be incorrect, since it implied they only had 80-55 = 25 billion of liquidity available.

I think the wording in the FDIC order was that customers were "initiating 42bn of withdrawals."[0] Doesn't mean those went through (in fact many from what I heard didn't.) Still certainly very possible that the analysis is incorrect. [0] https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...

Ah yeah you're correct good catch.

Re: Emergency bridge loan for SVB customers

#130

Post by arcticbull »

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.

Just because they exceed the FDIC threshold (i.e. they're over 250K) doesn't mean there's a lot of risk - it just means there's more than zero risk and you have to do some diligence.

Those deposits are backed by the assets on the balance sheet at SVB. They went under because they ran out of liquidity, not because they're massively upside down or their assets are crap. Those assets are largely medium-duration treasuries (10Y IIRC). They will pay out face value as they mature (they are the definition of risk free), and the losses on their balance sheet being reported are marked to market. Assuming they have to sell them immediately - which they did have to in order to meet withdrawals.

Now that the bank is in the FDICs hands, those medium-term treasuries need not be sold, and other liquidity options exist to make un-insured depositors mostly or entirely whole. One such option is just selling all accounts to a big guy like JPM, the way WaMu was handled in 2008. Or the FDIC can swap the treasuries for cash and since they have no time pressure, just wait until they mature.

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