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Startup lender Silicon Valley Bank to sell stock to cope with cash burn

reuters.com

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Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#41

Post by vkou »

htrp wrote: post #19
vkou wrote: post #12

Earlier quoted context omitted.

A bunch of overpriced tech firms isn't the kind of systemic problem that massive fraud in the 'AAA' mortgage sector was. It is, of course theoretically possible that some crooks repackaged and sold a bunch of equities as a 'safe' investment instrument to a bunch of morons, on a truly gargantuan scale. But if that has happened, nobody has heard about it.

>But if that has happened, nobody has heard about it. Spacs have entered the chat

SPACs repackage garbage equities into other garbage equities, with a few institutional investors hoping to make a quick buck on their equivalent of the IPO pop.

They are also a tiny percent of the overall equities market, and are largely seen as a failed experiment. They don't seem contagious.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#42

Post by testfoobar »

The wild thing is that the Federal Reserve is suffering from its own asset-liability mismatch due to the rise in interest rates. Income from its $8+ trillion balance sheet of Treasuries and MBS isn't covering its expenses (interest it must pay on reserves+operating expenses). But unlike a normal bank, the Federal Reserve cannot go bankrupt. It just books negative income and pays out by creating new money.

https://www.reuters.com/markets/us/feds-net-income-turned-ne...

https://thehill.com/opinion/finance/3886002-the-feds-trillio...

https://fred.stlouisfed.org/series/RESPPLLOPNWW

This is a strange world.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#44

Post by JumpCrisscross »

Octokiddie wrote: post #21

More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…

> Banks are required by law to buy US Treasuries (UST)

Yes. But they’re not required to buy long-dated, high-yielding, high-duration Treasuries (or MBS). Silvergate and SVB, out of incompetence or greed, optimised for yield, not liquidity, despite banking flighty depositors.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#45

Post by slt2021 »

fairity wrote: post #16
slt2021 wrote: post #14

SVB is inderwater not only because of tech decline, but mostly because they bought huge amount of agency MBS at the generational high prices (during low rates), thus tying lot of capital for a very long time. If they were to sell those MBS today to get cash, bank’s equity would be wiped out Source: https://twitter.com/ragingventures/status/161582608803847373...

I wonder if a bank run (triggered by this news) could force them to liquidate that portfolio.

liquidating HTM will mean bankruptcy, because bank will realize mark to market losses on MBS that exceed equity.

They will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot.

Even if bank will go bankrupt and sold to another buyer - new owner will still have to hold onto these MBS

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#46

Post by JumpCrisscross »

robmiller wrote: post #28
Quarrel wrote: post #10

Earlier quoted context omitted.

They're a bank. They have capital ratios to maintain. If the underlying assets (the assets backing the bank), move in value, then they need to provide extra capital from somewhere. This is them securing that capital base that they need due to the change in value of their current assets (largely US treasuries and mortgage back securities- this isn't really about the value of their tech portfolio).

As of March 15, 2020, bank cash reserve requirement was reduced to zero for all depository institutions.[0] 0 - https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Reserve requirements != capital requirements, the latter having replaced the former in modern banking.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#47

Post by dmoy »

hef19898 wrote: post #39
resters wrote: post #3

Earlier quoted context omitted.

SVB does a lot of venture debt. When venture debt is not repaid, SVB ends up owning the company, and can recover its exposure only if there is a buyer for the company or assets. In early stage land where valuations are the result of a fairly small consensus, it is plausible that SVB would have over-extended.

Stupid question, but should the investment arm of a bank be separated from the banking arm?

They used to be, after glass stegall in the 1930s.

this was a problem we learned during the 1920s

That has since been...... relaxed gradually, and almost completely done away with under Clinton in the 1990s. And then <10 years later we got the 2007/2008 crisis. But, the original separation of investment and banking didn't get re-instated during the dodd frank stuff that came after the last crisis.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#48

Post by kasey_junk »

robmiller wrote: post #28
Quarrel wrote: post #10

Earlier quoted context omitted.

They're a bank. They have capital ratios to maintain. If the underlying assets (the assets backing the bank), move in value, then they need to provide extra capital from somewhere. This is them securing that capital base that they need due to the change in value of their current assets (largely US treasuries and mortgage back securities- this isn't really about the value of their tech portfolio).

As of March 15, 2020, bank cash reserve requirement was reduced to zero for all depository institutions.[0] 0 - https://www.federalreserve.gov/monetarypolicy/reservereq.htm

That’s the reserve requirement and doesn’t have anything to do with their capital requirements.

The fed, fdic and occ all regulate banks capital and have strict requirements around it. Not to mention their equity holders.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#49

Post by hn_throwaway_99 »

jldugger wrote: post #40
Octokiddie wrote: post #21

More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…

> UST prices fall as interest rates rise Just to underscore the point here, in the past year, the fed has raised rates a ton, and counterintuitively, AGG, an ETF tracking a bond index fund heavily weighted towards US gov debt (by necessity) is down 15 percent over the past 2 years[1]. You might naively assume a bond fund values would reflect interest rates but there is a lag as you wait to roll over old bonds into ne…

> counterintuitively, AGG, an ETF tracking a bond index fund heavily weighted towards US gov debt (by necessity) is down 15 percent over the past 2 years.

Is that counterintuitive? "Existing bond prices fall when interest rates rise" is pretty common knowledge I thought, and it seems quite intuitive to me. If I have a bond that matures in 2 years that only pays 5%, and I can buy a new bond, with the exact same characteristics, but which pays 10%, then if I sold my bond now I'd have to do it at a discount in order to give it an effective 10% yield.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#50

Post by JumpCrisscross »

slt2021 wrote: post #45
fairity wrote: post #16

Earlier quoted context omitted.

I wonder if a bank run (triggered by this news) could force them to liquidate that portfolio.

liquidating HTM will mean bankruptcy, because bank will realize mark to market losses on MBS that exceed equity. They will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot. Even if bank will go bankrupt and sold to another buyer - new owner will still have to hold onto these MBS

> will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot

No, they’ll hold them to maturity and get back their principal.

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