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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

#61

Post by nradov »

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?

Maybe, but that's not relevant here. All banks invest their deposits in similar types of debt. SVB just made some bad decisions in terms of timing and liquidity, and now they have to recapitalize. If they can pull it off successfully then the bank will be fine but shareholders will get diluted.

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

#62

Post by nostrademons »

nradov wrote: post #59
nostrademons wrote: post #55

Earlier quoted context omitted.

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?

Predicted 2000, 2008-09, and 2020. Predicted growth from 2003-2007. Falsely predicted a double-dip in 2011. Predicted growth from 2012-2020. Correctly predicted that 2015 and 2017-2018 would not result in recessions at a time that media and some friends were saying they would. Incorrectly predicted that 2020 recession would last longer than it did - I reversed opinion in early 2021, which was a little late to capture much of the upside. Correctly predicted the 2020+ inflation.

In general I've got close to 100% success at avoiding major disasters, but also tend to be a little bit jumpy on the trigger and sometimes forecast disasters that do not happen. ("A little bit" meaning about a 30-40% false-positive rate, not a perma-bear.) I also usually predict a higher severity and longer duration than actually occurs.

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

#63

Post by nostrademons »

patch_cable wrote: post #60
nostrademons wrote: post #55

Earlier quoted context omitted.

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.

It still can trigger bank failures like the article is describing, though. Consumer pulls it out of one bank, creating a cash crunch there, and forces them to liquidate treasuries and realize large losses that had previously only been on paper. That bank is now insolvent. The bank that the recipient deposits them into now has more cash in hand, but they weren't facing a cash crunch in the first place. Some (bigger and more conservative) banks are going to end up doing great, but the financially weaker ones are going to get flushed out.

Think of it like a pot of superheated water. As long as it remains undisturbed it continues to be un-boiled, even though the temperature is above the boiling point. As soon as you jostle it, though, everything erupts. The movement was just a catalyst - the problem was that the underlying state existed in an unstable equilibrium.

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

#64

Post by CPLX »

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…

There's absolutely nothing counterintuitive about that at all. It's one of the most core principals of finance that as interest rates go up bonds go down.

In fact it's so direct that they are quite literally the same thing. The difference between the face value of the bond and the actual amount you have to pay to buy the bond is how you define what the interest rate is.*

* Yes I know subject to time to maturity and coupon and all that.

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

#65

Post by mikeyouse »

pphysch wrote: post #36
nostromo wrote: post #33

Earlier quoted context omitted.

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

Gotcha.

Post GFC, regulators started assigning risk weightings to bank assets — cash and treasury bills are “riskless” by this metric, most other things aren’t. So if you need $100 of reserves, that can be $100 of treasuries or $200 of car loans or $400 of mortgage backed securities. For obvious reasons, their balance sheets are heavily invested in treasuries now.

https://www.investopedia.com/terms/t/tier-1-capital-ratio.as...

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

#66

Post by rlonn »

nostrademons wrote: post #62
nradov wrote: post #59

Earlier quoted context omitted.

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?

Predicted 2000, 2008-09, and 2020. Predicted growth from 2003-2007. Falsely predicted a double-dip in 2011. Predicted growth from 2012-2020. Correctly predicted that 2015 and 2017-2018 would not result in recessions at a time that media and some friends were saying they would. Incorrectly predicted that 2020 recession would last longer than it did - I reversed opinion in early 2021, which was a little late to capture…

It’s like they say: bears have predicted all 25 of the last 5 recessions

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

#67

Post by CPLX »

testfoobar wrote: post #42

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…

> But unlike a normal bank, the Federal Reserve cannot go bankrupt. It just books negative income and pays out by creating new money.

I mean that is literally the entire point of their existence.

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

#68

Post by JohnFen »

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…

> is potentially a civilization-ending event.

Civilization-ending? How is that even remotely in the realm of possibility?

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

#69

Post by WJW »

xur17 wrote: post #52
WJW wrote: post #38

Earlier quoted context omitted.

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?

Perhaps, but probably not. Just doing some napkin math, to get to ten billion in withdrawals (ie only 5% of total assets of SV bank) you would need a million wall street bets subscribers to withdraw 10k each. Not a million to deposit it first and then retract it, a million retail subscribers who already had at least 10k deposited in this bank that mainly serves startups. I don't think it's very likely.

Also, it would still be extremely illegal to arrange this with the express purpose of causing a bank run. The excuse of "yes but it was on r/wallstreetbets" is not probably very impressive to the SEC.

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

#70

Post by toomuchtodo »

WJW wrote: post #69
xur17 wrote: post #52

Earlier quoted context omitted.

So a new target for /r/wallstreetbets?

Perhaps, but probably not. Just doing some napkin math, to get to ten billion in withdrawals (ie only 5% of total assets of SV bank) you would need a million wall street bets subscribers to withdraw 10k each. Not a million to deposit it first and then retract it, a million retail subscribers who already had at least 10k deposited in this bank that mainly serves startups. I don't think it's very likely. Also, it would…

While it’s unlikely we’re going to see a meme stock moment, a bank run by a collection of risk adverse founders already facing a challenging macro pulling their deposits is entirely possible. And those cash balances are likely much more than 10k assuming runway liquidity.

https://news.ycombinator.com/item?id=35086853

https://news.ycombinator.com/item?id=35086888

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