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Emergency bridge loan for SVB customers

brex.com

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Re: Emergency bridge loan for SVB customers

#161

Post by fnordpiglet »

IG_Semmelweiss wrote: post #150
fnordpiglet wrote: post #123

Earlier quoted context omitted.

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.

I don't think it is even chicken or egg. I think you have it wrong here I contend there is no private entity credit that would go near SVB because precisely they realized more losses than they had more depositors, and such credit would have never been secured at the top of the pile with the FDIC lurking nearby. No credit facility would save a doomed bank after the realized losses. It was a matter of time. The panic w…

That untrue. If they held the bonds to maturity they would be worth more than their face value. However due to time value of money other bonds with higher yields are in more demand making the current price lower. A private entity wouldn’t take the risk but a public one would. In fact the fed (quasi public) has been buying precisely these assets for over a decade. They actually made substantial returns by simply holding these MBS to maturity.

Re: Emergency bridge loan for SVB customers

#162

Post by fnordpiglet »

shawabawa3 wrote: post #157
fnordpiglet wrote: post #123

Earlier quoted context omitted.

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.

Credit doesn't help If you need $80B before your 10Y bonds mature and borrow it today, you're paying minimum 4% interest. By the time your $80B in bonds mature you owe $118B If you're saying it doesn't matter to FDIC because they can get "free" credit, that's equivalent to a bail out

I don’t think there’s any doubt the depositors and clients of the bank are being bailed out.

Re: Emergency bridge loan for SVB customers

#163

Post by rnk »

startupsfail wrote: post #144
Dylan16807 wrote: post #128

Earlier quoted context omitted.

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 cust…

There could be a bailout though. A massive fire in Silicon Valley caused by the Fed tweaking interest rates doesn’t look like a good thing, so we’ll likely see a fire brigade coming along and pouring some money in.

I really hope it's not the fed though, or any federal authorities. They shouldn't invent a new higher level of FDIC protection. They should allow losses here even if they want to do that. Just covering all of the losses which of course they could do, that's a bad precedent.

Re: Emergency bridge loan for SVB customers

#164

Post by startupsfail »

rnk wrote: post #163
startupsfail wrote: post #144

Earlier quoted context omitted.

There could be a bailout though. A massive fire in Silicon Valley caused by the Fed tweaking interest rates doesn’t look like a good thing, so we’ll likely see a fire brigade coming along and pouring some money in.

I really hope it's not the fed though, or any federal authorities. They shouldn't invent a new higher level of FDIC protection. They should allow losses here even if they want to do that. Just covering all of the losses which of course they could do, that's a bad precedent.

They’ve stepped in, so they should attempt to manage the thing to maximize the wealth generation long term. This is not a zero-sum game.

Re: Emergency bridge loan for SVB customers

#165

Post by muzz »

delusional wrote: post #152
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…

What would happen if SVB customer themselves went bankrupt? Say some risky investment startup was banking with SVB and had $1 million with them. They can now take out a bridge loan. What if that investment startup now suffers its own liquidity crisis (or even just waste all the money) and default themselves. How is brex covered in such a case? Wouldn't they have to get in line with all the other creditors/investors?

Isn't the loan backed by the deposit at SVB? That seems like the whole point of it.

Yes some startups will go bankrupt and most of the remaining ones won't be profitable any time soon.

Surely Brex isn't counting on the profit from operations of the borrower to repay the loan, but rather that company's deposits at SVB being released at some time in the future.

Re: Emergency bridge loan for SVB customers

#166

Post by JumpCrisscross »

arcticbull wrote: post #132
nostromo wrote: post #76

Earlier quoted context omitted.

Treasuries can and do lose value. They are not like cash which does not lose face value. Long term treasuries have declined 40% in value since they peaked in 2020. https://www.google.com/finance/quote/TLT:NASDAQ Banks hold a lot of treasuries as part of their capital requirements. So long as they intend to hold them to maturity, they don't have to mark them to market. Banks collectively hold about $620 billion in los…

> Treasuries can and do lose value. They are not like cash which does not lose face value. > Long term treasuries have declined 40% in value since they peaked in 2020. This is inaccurate. What you linked to (TLT) aren't bonds, these are bond funds . The way a bond ETF works is that they have a stack of bonds that track the benchmark interest rate. They periodically sell off their old bonds and buy new ones, they don'…

> Treasuries cannot lose value just like cash. They are as good as cash in almost every context

No free lunch. Treasuries yield more than bills because they’re less liquid.

Re: Emergency bridge loan for SVB customers

#167

Post by JumpCrisscross »

fnordpiglet wrote: post #161
IG_Semmelweiss wrote: post #150

Earlier quoted context omitted.

I don't think it is even chicken or egg. I think you have it wrong here I contend there is no private entity credit that would go near SVB because precisely they realized more losses than they had more depositors, and such credit would have never been secured at the top of the pile with the FDIC lurking nearby. No credit facility would save a doomed bank after the realized losses. It was a matter of time. The panic w…

That untrue. If they held the bonds to maturity they would be worth more than their face value. However due to time value of money other bonds with higher yields are in more demand making the current price lower. A private entity wouldn’t take the risk but a public one would. In fact the fed (quasi public) has been buying precisely these assets for over a decade. They actually made substantial returns by simply holdi…

> the fed (quasi public) has been buying precisely these assets for over a decade

At market price, not face value.

Re: Emergency bridge loan for SVB customers

#168

Post by hnfong »

delusional wrote: post #152
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…

What would happen if SVB customer themselves went bankrupt? Say some risky investment startup was banking with SVB and had $1 million with them. They can now take out a bridge loan. What if that investment startup now suffers its own liquidity crisis (or even just waste all the money) and default themselves. How is brex covered in such a case? Wouldn't they have to get in line with all the other creditors/investors?

Most likely Brex would structure the bridge loan so that they would be a secured creditor due to having a charge(?)/lien(?) over the rights of the client's SVB deposits.

Not sure how this works out in practice, IANAL, etc.

Re: Emergency bridge loan for SVB customers

#169

Post by hnfong »

NovemberWhiskey wrote: post #158
pseudo0 wrote: post #81

Earlier quoted context omitted.

Why do we let banks play these sorts of shell games? If they are holding an asset worth $0.80, I don't see why we allow them to claim it is worth $1.00 because that is what they paid for it.

Let me give you a simple example. Imagine a bank takes demand deposits and pays a variable rate of the base rate minus 1%. The bank then makes fixed rate, 30 year mortgage loans that it intends to service itself at the base rate plus 2% (portfolio loans). Interest rates then go up. Bang: that bank just became insolvent. Is this actually the model of the world you want?

> Bang: that bank just became insolvent. Is this actually the model of the world you want?

I'm not sure what the problem is, this model to me actually seems reasonable. The alternative is to claim that "We are solvent as long as our clients keep deposits in our bank and are happy with an interest rate lower than our competitors for 30 years".

In fact the scenario you're describing is basically what happened to SVB except the interest rates increased more.

I guess the main issue is that generally banks do take a risk by borrowing short and lending long, and hope that things work out in the end.

Re: Emergency bridge loan for SVB customers

#170

Post by hnfong »

ummonk wrote: post #139
MrMan wrote: post #99

Earlier quoted context omitted.

this is a lie, I am petty sure. why are you posting this stuff

I mean we'll find out shortly enough. If they can't find a buyer for SVB, then it's likely insolvent. If they do then it's obviously solvent.

So basically you're saying you don't know or you don't have concrete evidence, but you're going to confidently make a claim anyway.
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