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

cnbc.com

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

#161

Post by bragr »

batmaniam wrote: post #155

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.

Their primary business was making large loans to startups so they didn't have to sell shares to raise capital. Then it sounds like they leveraged that business to sell other financial products, e.g. mortgages etc

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

#163

Post by rurp »

rich_sasha wrote: post #87

One thing to bear in mind is that "failing" is not binary. The story seems to be that SV put all their deposits into 10 y bonds in 2021. I'll use that as an approximation. A 10Y bond will usually move about 8x as much as the underlying interest rate (it's called "duration"). So if SVB did nothing but buy these bonds and sit on them, then they would have lost about 36% on these (8 x 4.5% rate movement). That's a lot b…

A bank that can't pay back 100% of deposits has failed. This isn't equity where haircuts can be expected at times; depositors absolutely expect to be able to get back all of their money when requested.

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

#164

Post by jefftk »

adamsmith143 wrote: post #97
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)

I mean if you put $20MM into an account with only $250k of insurance you miiiiight deserve to go out of business.

There are a lot of things that can kill a startup, and founders need to prioritize between them. Bank failures are rare enough that I wouldn't be surprised if many otherwise-good startups had not considered them to be a risk worth focusing on.

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

#165

Post by gitfan86 »

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…

A lot of us took out 3% mortgages and avoided working at startups offering 400k to build some vaguely defined "democratization of finance" product.

No one said SVB is going to be insolvent on 3/10, but lots of people thought SV and investors were making bad decisions in general over the past several years.

SVB is a victim of its own culture. You would never be hired as an exec at SVB is you said "Lets keep all these deposits in 1-month Tbills and cash since most of these startups are garbage and are going to need to take withdrawals within a couple years."

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

#166

Post by dahdum »

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…

What are the executives getting paid so much for, if not to manage complicated financial risk? I'm no banker, but as a layperson, I was certainly aware that inflation was possible. I figured it was a given (M2 growth and low productivity), but I guess they felt strongly enough otherwise to risk their entire bank?

Could they not have cut interest rates and take the dip in profit with shorter duration bonds? Was there really no sensible way to prevent this?

Businesses fail all the time from things outside their control, but I've yet to see any indication that's the case here.

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

#167

Post by jedberg »

batmaniam wrote: post #155

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.

It was a lot of little things, but the main thing was that the understood startups so they would take into account your funding as well as your LOIs when making loan decisions, whereas most banks would not because they didn't understand them. That made it easier to get free cash when all of your startup's assets were basically owed money.

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

#168

Post by prottog »

Zetice wrote: post #153
prottog wrote: post #140

Earlier quoted context omitted.

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…

Which pre-Fed crises were worse than the Great Depression or the GFC?

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

#169

Post by rootusrootus »

CydeWeys wrote: post #158
almost_usual wrote: post #127

Earlier quoted context omitted.

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.

It's great, but it punishes the smaller banks while leaving the 'too big to fail' conglomerates in a position to be bailed out by taxpayers. We need to chop down any bank that poses a systemic risk so that it's small enough for the FDIC to handle.

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

#170

Post by crisdux »

MrMan wrote: post #107
crisdux wrote: post #24

Earlier quoted context omitted.

I'm spitballing here but it could be an opportunity for another bank to expand into a new market and acquire new customers. SVB has a unique position in the market, as they specialize in catering to the financial needs of industries such as technology, life science, healthcare, private equity, and venture capital.

these specialist banks are not worth much, there is no retail banking advantage to having tech companies as clients. the individual people who run the companies are most likely already wealth management clients of the same banks that might acquire SVB.

I believe the customers they would be going after are commercial entities, not retail.
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