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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

#181

Post by axlee »

rurp wrote: post #163
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.

> A bank that can't pay back 100% of deposits has failed.

Well, not at the same time. No bank can do that.

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

#182

Post by late2part »

rcme wrote: post #128
nonethewiser wrote: post #110

Earlier quoted context omitted.

You're disagreeing but I dont see the conflict between your claims and his.

He's making it sound like depositors are going to get 80% of their money back tomorrow. It's going to be a years-long legal battle while affected companies are going to potentially shutter due to an inability to meet obligations. Also, his number of 80-85 is based on the yield of the treasuries, but old treasuries like this are hard to move.

Why won't the FDIC resolve this quickly for depositors?

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

#183

Post by chollida1 »

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…

> The story seems to be that SV put all their deposits into 10 y bonds in 2021.

Not sure who told you that, its incorrect.

https://twitter.com/jamiequint/status/1633956163565002752?s=...

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

#184

Post by Zetice »

prottog wrote: post #168
Zetice wrote: post #153

Earlier quoted context omitted.

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?

https://www.investopedia.com/articles/economics/08/federal-r...

The obvious example is the panic of 1907, and if your argument is that today’s fed looks anything like 1929’s fed, that’s gonna be a tough road to hoe.

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

#185

Post by airza »

hnfong wrote: post #148
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…

> That's a lot but also means depositors get 80-85% of their money back That's not what happens. Let's say 100 clients each deposited $1 in the bank, and the bank loses $20, so only has $80 to pay out when liquidated. Let's say half (50) depositors withdraw their funds early, they each get $1 back. So now the bank has $30 in assets and has to pay 50 people. Suppose 20 people demand withdrawals, and the bank pays $20…

This isn't bitcoin world though, deposits are FDIC insured to stop this

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

#186

Post by ValG »

cjblack wrote: post #101
dboreham wrote: post #82

Earlier quoted context omitted.

Employers are legally on the hook for payroll so what will happen is management/stock holders will foot the bill.

Management and shareholders would not be personally on the hook for missed payroll in the event of insolvency. If all the cash evaporated from my company's account, we were forced to declare bankruptcy, that's pretty much game over. The employees would be among other creditors figuring out their turn to pick over the remains. The employees may end up near the top of the list, but they wouldn't get to hold the C-Suite…

I don't which other states may do this, but in Cali Labor Code Section 558.1 - company managers and owners are personally liable for missed wages. It is a codified approach to piercing the corporate veil. I learned this well when we had a single digit bank account and were waiting on funding to get wired in as payroll was coming due.

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

#187

Post by floatinglotus »

tbruckner wrote: post #96
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…

The issue is that a startup needs that capital right now. They cannot wait for bankruptcy courts to redistribute.

This is the big issue. If they can’t get their money lots of startups will fold very quickly.

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

#188

Post by nemo44x »

HDThoreaun wrote: post #157
nemo44x wrote: post #134

Earlier quoted context omitted.

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 s…

I don't think you're right. Here is an article from 2021 describing this. [1] Everyone has been doing it. SVB is unique in that its customers relied on financing to continue and because it hasn't they have been drawing their runway down. Other banks don't face this dilemma necessarily. Or they do and are coming up next. I don't know if you noticed, but a lot of banks stocks are down massively this week.

[1] https://www.nytimes.com/2021/08/25/business/banks-government...

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

#189

Post by spaceman_2020 »

ackbar03 wrote: post #80

They should have bought bitcoin instead. Oh wait, silvergates also in trouble

Well, Bitcoin hasn't had to be bailed out yet.

It's alright if things fail or lose value. That's a natural part of markets. Taxpayers money going to bail out banks, otoh, is pretty much what started Bitcoin.

"Chancellor on the Brink of Second Bailout for Banks" - still encoded in the genesis BTC block.

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

#190

Post by hnfong »

HDThoreaun wrote: post #157
nemo44x wrote: post #134

Earlier quoted context omitted.

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 s…

Smaller banks are usually pressured into offering higher interest rates to compete with larger banks. Holding cash gives you exactly 0%, and short term maturity bonds pre-2022 basically gave you roughly 0%. So, as a small bank how do you entice your customers to keep money in your bank? If the large banks are offering say 0.5%, you're probably pressured into offering ~1%. And how do you afford to do that? By buying longer term bonds.

OK, now comes 2022, inflation is high and you think the Fed will increase rates. Now your bonds have already dropped in price due to the anticipated rate hikes. The billion dollar question now is whether you believe the Fed's "it's fine, don't worry we can get inflation under control", and keep your bonds, or whether you believe aggressive rate hikes are coming? It's easy to ridicule in hindsight, but as the saying goes hindsight is 20-20.

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