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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

#291

Post by jschveibinz »

zamnos wrote: post #283
cddotdotslash wrote: post #219

Earlier quoted context omitted.

Here’s somethingI don’t understand. Say you raise $100m funding round. Investors just give you the entire amount, in cash? And companies just put that entire cash amount in a bank? It seems like it would be better for VCs to keep the money, invest it (in, I don’t know, the S&P500), and then pay out to the companies on a monthly basis or some other terms. I can’t fathom how there are hundreds of companies, each with 1…

Let's assume most companies don't generally have drooling morons for CFOs because, well, they don't. The majority of unneeded funds are invested somewhere, most likely a managed fund. So the amount of cash sitting at SVB earning zero percent interest is relatively small. But when you have 30 people making $120/yr, and payroll is due this week ($300k), and your $1m/month AWS/GCP bill is also due this week (skip the re…

Right. This is the crux of the matter.

Laddered CD’s, money markets, treasuries and other semi-liquid fixed income investments are probably better than the S&P500. Most boards (and shareholders) would frown on investing funds in the market. The value is supposed to be in the company, not the stock market.

It’s a good idea to collateralize (leverage) the funds following a raise for a line of credit with one or even two banks to have short-term cash options. The longer you build a trust relationship with a bank VP and use a line of credit responsibly, the better position you’ll be in when it’s crunch time or there is a big opportunity to go after with big short term cash requirements that can’t come from selling equity.

I’ve seen too many product-oriented startups try to raise bridge rounds because they are cash poor when they should have secured a banking relationship when they had funds available.

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

#292

Post by noelsusman »

hnfong wrote: post #231
HDThoreaun wrote: post #145

Earlier quoted context omitted.

The Fed gave plenty of warning that they would raise rates. Preventing 10% unemployment was absolutely worth the covid helicopter money. SVB is obviously incompetent just from seeing how they've handled the last couple days and should've realized that their long term bonds would get blown up in the post pandemic monetary environment.

> The Fed gave plenty of warning that they would raise rates. In 2022. Up till the end of 2021, they kept saying inflation is "transitory". According to reports SVB bought a bunch of 10 year MBS in 2021. SVB is obviously incompetent in believing in that Fed BS about transitory inflation -- wait but should they have believed in the rate hikes as well then?

If your solvency as a bank relies on you accurately predicting inflation and/or fed rate decisions then something has already gone terribly wrong.

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

#293

Post by gabrielgrant »

glasshug wrote: post #230
hnfong wrote: post #148

Earlier quoted context omitted.

> 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…

You're also forgetting about clawbacks of preferential transfers that happened less than 90 days before bankruptcy. 11 U.S.C. 547.

I don't believe the bankruptcy clawback provisions you're referring to apply here, because this is an FDIC conservatorship/receivership, not a bankruptcy proceeding. I don't fully understand why this particular part of the processes differs, but I'd argue it's that it does unfortunate, as it incentivizes bank runs like this.

There is an extensive comparison of the two processes in [1]. Specifically:

> the Bankruptcy Code provides trustees the authority to avoid, that is, claw-back or reverse, certain transfers (subject to certain limitations52) made by debtors

> the FDIC as conservator or receiver may not avoid (i.e., reverse or claw-back) any property transfer pursuant to a qualified financial contract unless the transfer was performed with the "actual intent to hinder, delay, or defraud."

[1]: https://www.everycrsreport.com/reports/R40530.html

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

#294

Post by 015a »

ValG wrote: post #197
015a wrote: post #141

Earlier quoted context omitted.

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…

It's very possible that we never raised enough, or the firms we did raise from operate differently, but we did raise low $xxM and we got all of it at once, and we did in fact deposit it right into out SVB account. I've never heard of the "just in time" funding - and if that's more common than I think I'm also very surprised that we don't hear more of the "fund committed $100M, but the business went south and they dec…

That's interesting; I've heard the opposite from every VC I've talked to about it. Its possible that different firms do things differently, and the ones I've talked to are in the minority.

> the "fund committed $100M, but the business went south and they declined to fund it fully" sort of stories.

My understanding is that its contractually obligated, and there would be legal ramifications for doing such a thing (or, there are clauses in the contract which allow it, or, you know, its pretty common for VC partners to sit on the board of the businesses they fund, so there are definitely options for the VC to assert sway over the company's finances and spend short of turning off the hose and breaking a contract).

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

#295

Post by rixrax »

brianwawok wrote: post #276
ProjectArcturis wrote: post #271

Earlier quoted context omitted.

This is precisely why we have the FDIC -- if deposits are federally insured, there is much smaller incentive for depositors to withdraw their money out of fear of a bank run.

250k per account. Imagine all the big businesses with millions in the bank. FDIC will not help them.

"As of December 31, 2022, the amount of estimated uninsured deposits in [SVB] U.S. offices that exceed the FDIC insurance limit was $151.5 billion. [from total deposits of $173,11B]." [0]

[0] https://ir.svb.com/financials/sec-filings/sec-filings-detail...

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

#296

Post by cwkoss »

rcme wrote: post #95
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…

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.

Can the bank be sold and continue operating under new ownership without making all depositors whole?

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

#297

Post by cwkoss »

rcme wrote: post #102
moondistance wrote: post #15

Earlier quoted context omitted.

There has been interest in acquiring SVB for a long time. There will be multiple bidders and a deep discount. Suspect a sale will happen this weekend.

There was interest when SVB was solvent. Right now, SVB has negative value. E.g. you'd need to buy SVB for X and then pay an additional Y to balance the books. Y is likely to be a certain percentage of deposits and could be quite large. The only groups that will be interested in SVB are likely VC funds that are worried about an SVB collapse disrupting operations at the VC's startups.

For making customer deposits whole, someone will get to become an iconic bay area institution.

Not worth $20B to me, but there are dozens of vain people with billions that may disagree.

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

#298

Post by ttul »

samstave wrote: post #249
ttul wrote: post #83

Earlier quoted context omitted.

Any buyer would do their own diligence and assign their own estimated value to the assets. I believe there will be a healthy competition for SVB despite their current problems. Many other banks have long wished to establish a presence in the tech world, where SVB has for a very long time been a leader.

Where can one find a list of companies that have primary banking through SVB?

In SVB’s computer.

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

#299

Post by samstave »

whitemary wrote: post #260
brian_cloutier wrote: post #227

Earlier quoted context omitted.

I believe the implication is: why aren't we using the fed for our banking, this kind of bank run would be impossible. The fed provides guarantees to banks but not to retail and that's a policy decision we could change, if we wanted to.

> The fed provides guarantees to banks but not to retail and that's a policy decision we could change, if we wanted to. Who is "we?" The US is not a democracy. Nothing could stop US elites from overturning the Bretton Woods system, passing NAFTA, and bailing out the banks in the mortgage crisis, so what makes you think "we" could change this policy decision? Karl Marx showed us how capitalism works 150 years ago. The…

>>Who is "we?"

Guns

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

#300

Post by the_mar »

brianwawok wrote: post #276
ProjectArcturis wrote: post #271

Earlier quoted context omitted.

This is precisely why we have the FDIC -- if deposits are federally insured, there is much smaller incentive for depositors to withdraw their money out of fear of a bank run.

250k per account. Imagine all the big businesses with millions in the bank. FDIC will not help them.

2.7% of SVB deposits were FDIC insured
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