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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

#51

Post by JumpCrisscross »

resters wrote: post #3
makaimc wrote: post #2

Do other US financial institutions have the same exposures, or is this a one-off situation based on SVB's closeness to the US tech sector?

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.

> SVB does a lot of venture debt

These losses aren’t related to SVB’s debt portfolio. It’s due to their deposits being flighty.

SVB banks start-ups. Start-ups are spending cash faster than they’re getting it from VCs or customers. That leaves SVB with fewer deposits with which to fund their assets, so they must fire sell assets, which isn’t fun to do.

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

#52

Post by xur17 »

WJW wrote: post #38
londons_explore wrote: post #29

Earlier quoted context omitted.

This means that anyone who has a lot of deposits at a US bank can potentially: * Withdraw all their holdings, forcing the bank to realise losses in their holdings * Buy shorts in the stock of the bank * When the losses are announced, make lots of money from their short position.

Step 4: receive your complementary court summons for market manipulation. As a more practical matter, you would need a very large sum to do this for even mid-sized banks. SV bank alone had over 200 billion in assets, so you would need at least ~10 in cash to make a significant dent in that. If you have that much cash in any bank, there are probably many options you could go for that promise bigger profits at less ris…

So a new target for /r/wallstreetbets?

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

#53

Post by kasey_junk »

notch898a wrote: post #18
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).

What are those ratios? Can I find them somewhere?

Bank capital requirements are huge and cross many regulatory regimes. The simple ratios you’ll see online are reserve requirements which are orthogonal to capital requirements.

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

#54

Post by JumpCrisscross »

vkou wrote: post #12
candiddevmike wrote: post #8

Earlier quoted context omitted.

I think the real start of it will be after the GPT hype dies down. Everyone is racing to build/add AI things and the hype around that is preventing a freefall in the tech sector, IMO.

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.

> some crooks repackaged and sold a bunch of equities as a 'safe' investment instrument to a bunch of morons, on a truly gargantuan scale

This doesn’t tend to cause crisis. When that equity is packaged into debt is the problem. I’m not seeing that yet.

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

#55

Post by nostrademons »

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…

Unpopular and pretty far-out opinion: 2023-2024 is going to be a bigger financial crisis than 2008-2009, and is potentially a civilization-ending event.

The brewing crisis is that the Fed needs to trigger a recession (with job loss) to bring down inflation, because the root cause of the inflation is that there are too few workers for the available roles in the current structure of the economy, and so the economy needs to be refactored to drop non-critical industries and inefficient firms. But that's going to cause a cash crunch, since laid-off workers start pulling cash out of banks instead of making it at their jobs. Plus many consumers are drawing down on their savings and going into debt now because of inflation. And it's going to happen right at the greatest velocity of interest rate increases, when Treasuries are at their lowest. So we're going to see bank failures on top of job losses, right as interest rates hit their highest.

IMHO we're already off the cliff, we just haven't realized it yet. It was going to hit in ~2024-2025 anyway as demographics started creating a labor shortage, but COVID accelerated it with a bunch of early retirements and supply chain snags.

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

#56

Post by Quarrel »

notch898a wrote: post #18
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).

What are those ratios? Can I find them somewhere?

Others have given you some US specific answers, but they're broadly set for most of the global banking world by the Basel accords.

The world is currently trying to meet the Basel III standard:

https://en.wikipedia.org/wiki/Basel_III

The situation in any specific country can be bit different in the timelines and ways they meet the standard however.

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

#57

Post by [deleted] »

tikkun wrote: post #22
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…

Can you send me an email? Email in profile. I have more thoughts on the UST situation

[deleted]

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

#58

Post by lxgr »

nostromo wrote: post #33
pphysch wrote: post #26

Earlier quoted context omitted.

> Banks are required by law to buy US Treasuries (UST). This regulation came about after the GFC. Can you expand on this? What is this regulation titled?

Banks are required to have reserves. Reserves are mostly held as US Treasuries.

Aren't bank reserves normally cash (or equivalently central bank deposits)?

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

#59

Post by nradov »

nostrademons wrote: post #55
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…

Unpopular and pretty far-out opinion: 2023-2024 is going to be a bigger financial crisis than 2008-2009, and is potentially a civilization-ending event. The brewing crisis is that the Fed needs to trigger a recession (with job loss) to bring down inflation, because the root cause of the inflation is that there are too few workers for the available roles in the current structure of the economy, and so the economy need…

There have been plenty of recessions and depressions so far and none of them have ended civilization. Another recession is certainly possible this year, but some people are always predicting those. Do you have a record of making accurate recession predictions without false positives?

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

#60

Post by patch_cable »

nostrademons wrote: post #55
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…

Unpopular and pretty far-out opinion: 2023-2024 is going to be a bigger financial crisis than 2008-2009, and is potentially a civilization-ending event. The brewing crisis is that the Fed needs to trigger a recession (with job loss) to bring down inflation, because the root cause of the inflation is that there are too few workers for the available roles in the current structure of the economy, and so the economy need…

> pulling cash out of banks

In practice, the cash still probably ends up at a bank, just in a different account. I don't think anyone is going to pull it out and start burying it in their back yard.

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