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SVB in talks to sell itself after attempts to raise capital fail

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Re: SVB in talks to sell itself after attempts to raise capital fail

#151

Post by prottog »

rich_sasha wrote: post #103
rcme wrote: post #95

Earlier quoted context omitted.

No, failing is failing. It means the bank is insolvent. That doesn't mean the bank is worthless, but it doesn't have enough cash to meet its obligations. And yes, depositors will likely get some of their money back, but only after a long battle. Also, the bonds held by the bank are likely off the run. The market for these is not large.

Yes, insolvent, but the money doesn't go poof. I never traded cash bonds but would struggle to imagine it would be hard to liquidate. Sure, over a week, but surely SVB can't be a major bondholder.

> I never traded cash bonds but would struggle to imagine it would be hard to liquidate

Bonds are actually well known for having terrible liquidity. It's common for corps and munis even with good credit ratings to be no-bid, and even Treasuries, once they're off-the-run, aren't easy to move without moving markets.

Re: SVB in talks to sell itself after attempts to raise capital fail

#152

Post by checkcircuits »

huevosabio wrote: post #136
ancorevard wrote: post #112

In hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday. However, sad to see what looks to be another government caused implosion. - First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditio…

The pandemic was going to shake the boat regardless. It was impossible to right-size the stimulus, and in hindsight we over did it, but given the information we had then I think we did the right move, at least with the 2020 stimulus. The 2021 stimulus is much more shady given that then we already had a vaccine deployed and were in a trajectory to recovery.

> it was impossible to right-size the stimulus

This is wrong. DETR, the Nevada Unemployment Office, gave out 1.4B too much [0]. I am absolutely sure this is not an isolated case. The absolute level of corruption disguised at absolute incompetence is too high to let the government off that easily. 2020-2021 was the biggest wealth transfer from the poor to the ultra rich in the history of the world. The stimulus didn't even have a clawback attached to it.

[0] https://www.ktnv.com/13-investigates/detr-sent-out-1-4-billi...

Re: SVB in talks to sell itself after attempts to raise capital fail

#153

Post by Zetice »

prottog wrote: post #140
ancorevard wrote: post #112

In hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday. However, sad to see what looks to be another government caused implosion. - First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditio…

It seems like we've had just as many financial crises before the advent of the Federal Reserve in 1913 than after, so it remains unclear to me the benefits of having it around, particularly as its nominal independence from the political process is eroding. Sure, keep the lender of last resort; but maybe let the market determine interest rates through money markets, with incentive-control through judicious laws, inste…

Hmm, I suggest reading about some of the pre-fed crises to understand better why these modern problems are much better to have if given the choice…

Re: SVB in talks to sell itself after attempts to raise capital fail

#154

Post by kqr2 »

huevosabio wrote: post #136
ancorevard wrote: post #112

In hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday. However, sad to see what looks to be another government caused implosion. - First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditio…

The pandemic was going to shake the boat regardless. It was impossible to right-size the stimulus, and in hindsight we over did it, but given the information we had then I think we did the right move, at least with the 2020 stimulus. The 2021 stimulus is much more shady given that then we already had a vaccine deployed and were in a trajectory to recovery.

https://www.newyorker.com/news/our-columnists/is-larry-summe...

Re: SVB in talks to sell itself after attempts to raise capital fail

#155

Post by batmaniam »

What made SVB so attractive to startup founders? All the news reports I'm reading is saying that's their target customer.

What advantages did SVB provide that other brand named bank didn't? Wouldn't it have been safer to put your startup's money in Bank of America, or JP Morgan, etc? I've never heard of SVB until the crash.

Re: SVB in talks to sell itself after attempts to raise capital fail

#156

Post by quesera »

015a wrote: post #141
rickreynoldssf wrote: post #70

Earlier quoted context omitted.

Well if a startup just closed a $20MM round they'll get back $250,000 after a long unwinding from the FDIC. So that's a pretty big haircut. I look to Sequoia because, of any VC fund, they are the most likely to be able to pull off a takeover of SVB. I am still gobsmacked that they invested hundreds of millions in a company with no board or CFO (FTX)

That's not remotely true, for a couple reasons. 1) FDIC insurance only applies in situations where the bank doesn't have the assets to make depositors whole. SVB has a ton of assets; most sources I've found asserting 100% deposit coverage, just not liquid. Even if the FDIC takes over (which isn't even likely) (edit: this aged well), the insurance element is irrelevant; its about operations and finding funding to driv…

I don't think this is uniformly true.

Some startups definitely deposit $X-$XX MM directly into an account at SVB. Depending on a bunch of factors, these funds can be risk for availability in the short term.

SVB's assets are not liquid enough to cover all of those funds, obviously. If depositors panic in a meaningful way (they have, and will continue to do so), then SVB will be under new management by Monday.

Startups' $XX MM will not be lost. Today's payroll might fail. Next week's will be fine.

Re: SVB in talks to sell itself after attempts to raise capital fail

#157

Post by HDThoreaun »

nemo44x wrote: post #134
lazide wrote: post #90

Earlier quoted context omitted.

It’s really mind boggling that SVB put so much money into bonds with long maturations at essentially zero or negative interest rates. I wonder how many others did similar?

It's not like they wanted to. Loads of money was coming in from funded companies but the demand for loans was low. So they had to put the money somewhere and banks (not just SVB) began putting record amounts into treasuries. At least they got something from them so they could pay interest on things and keep the lights on. The government printed a ton of money and demand for loans crashed after the pandemic started. P…

No, they did not have to put the money somewhere. They could've kept the cash as cash if they wanted to. Holding cash is free for a bank, it's not like their costs increased since they weren't paying any interest on deposits. They could've bought derivatives to hedge against the likely scenario that interest rates increase. They could've bought 1 year bonds instead of 10. They really fucked up here.

> But this is a side effect that no one really saw.

Literally everyone except SVB saw that long term bonds would decrease in value post pandemic when interest rates increase. Interest rate increases lowering the value of bonds is quite literally the most basic rule of bonds.

Re: SVB in talks to sell itself after attempts to raise capital fail

#158

Post by CydeWeys »

almost_usual wrote: post #127
ancorevard wrote: post #112

In hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday. However, sad to see what looks to be another government caused implosion. - First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditio…

I’d argue preventing a total financial collapse in 2020 is more important than SVB and some startups failing.

Yup. FDIC insurance exists for this reason -- you can let a bank that made bad decisions fail without causing a chain reaction through the economy.

Re: SVB in talks to sell itself after attempts to raise capital fail

#159

Post by tigerBL00D »

ancorevard wrote: post #112

In hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday. However, sad to see what looks to be another government caused implosion. - First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditio…

Blaming the government for poor investment decisions is just ridiculous. The playing field is level yet they are the ones to eat shit. They didn't diversify. They didn't consider macroeconomics. They didn't limit deposits despite having no game plan. It's pure greed and mismanagement.

Re: SVB in talks to sell itself after attempts to raise capital fail

#160

Post by checkcircuits »

jlmorton wrote: post #100
ejb999 wrote: post #34

Earlier quoted context omitted.

rising interest rates, and an economy that is beginning to falter.

The doomsayers have shifted from "we've been in a recession for six months, they just changed the definition of a recession" to "an economy that is beginning to falter." I'll take that as a sign that the economy remains robust.

Really? That seems bold.

They quite literally changed the definition of a recession. Just because it's not a historically accurate recession does not mean we are not in, nor that are not heading into, one.

ZIRP is dead, there's no indication interest rates will go down any time soon, CPI indicates food costs are not moving, energy is still expensive, layoffs are picking up steam, housing is at it's most unaffordable time in history, etc.

You look at the gestalt sitting in front of you and you say "the economy remains robust". Lord, I wish I had your naivity^W^W^W^W^W^W^W optimism. I lived through the GFC and suffered the consequences of hedonistic money policy. History may not repeat but it certainly rhymes and all of this is starting to smell very familiar to me. I'm not in possession of a crystal ball but as it stands there is still too much money in the economy. The VAST majority of stock value since the GFC has been from stock buyback programs and not bottom line increases. That alone should tell you the possible origin of the next disaster.

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