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Can you explain this a bit?
This explains it all: https://twitter.com/FedGuy12/status/1634031134505066496
And a VC firm getting caught in the exposure to SVB: https://twitter.com/BloombergTV/status/1634131376743108608
SVB in talks to sell itself after attempts to raise capital fail
81–90 of 310 posts
Re: SVB in talks to sell itself after attempts to raise capital fail
#82I'm feeling like this is early days of a disaster in Silicon Valley. We're at the first or second domino teetering right now. I hope a Sequoia or KPB will step up and save the bank, otherwise a lot of their portfolio investments are about to start missing payrolls.
Playing out this scenario: Will missing payrolls result in layoffs/resignations? Thus, increasing unemployment rate that the FED desires. If contagion doesn’t spread outside of tech/startup, does the government have any incentive to intervene? Maybe this is not too big to fail. A sale seems like the most likely scenario out of this liquidity problem (insolvency). It’ll be dirt cheap and has to make sense to its buyer…
Employers are legally on the hook for payroll so what will happen is management/stock holders will foot the bill.
Re: SVB in talks to sell itself after attempts to raise capital fail
#83Will all the private assets that have avoided markdowns since the downturn be forced to get re-valued when a new entity buys SVB? They’d have to I assume to value their new books. If yes that’s a lot of valuation haircuts.
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.
Re: SVB in talks to sell itself after attempts to raise capital fail
#84Very curious to understand how this works. For all intents and purposes, if the bank was unable to raise capital, it is at least nominally bankrupt. What value would another entity find in a bank that has failed? To be fair, the government may find value in shoring this bank up. That's a different story. The bank will be essentially nationalized at that point.
Supposedly they already have a 15b borrow from the fed. If that’s their only capital then I believe they’re out of options.
Do you mean they've taken money from the fed to capitalize the bank already? I understood they were essentially giving money to the fed through their portfolio of purchases t-bonds.
Re: SVB in talks to sell itself after attempts to raise capital fail
#85Re: SVB in talks to sell itself after attempts to raise capital fail
#86Earlier quoted context omitted.
It’s very common for a larger bank to buy out a smaller bank, even if it is nominally bankrupt. Sometimes the government steps in and helps out by providing various guarantees or short term funding. This is nominally a bailout, but may actually save taxpayers money by not having to involve the FDIC. See: WaMu being bought out by JPMorgan Chase for $1.9 Billion in the 2008 crisis.
Wasn't this a famously bad transaction for JPM?
This retrospective analysis (1 year after the transaction) shows it was probably a reasonable, although not great, deal: https://www.fool.com/investing/general/2009/09/25/jpmorgan-a...
Chase getting a whole bunch of branches in the Southeast and Washington state for practically free probably left them better off in the long run.
Re: SVB in talks to sell itself after attempts to raise capital fail
#87One 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 but also better than losing everything. And you'd hope the bank wasn't idiotic enough to take no precautions: no hedging of IR changes, putting all assets into just that.
My finger in the air haircut would thus be maybe 15-20% loss of deposits, if this simplified model has anything to do with reality. That's a lot but also means depositors get 80-85% of their money back.
It's possibly pushing the limits of my toy model here but a 10Y bond bought in 2021 is now only an 8Y bond, because time has passed. So instead of 8x you get more like 6x and the pessimistic haircut number is thus 29%.
Re: SVB in talks to sell itself after attempts to raise capital fail
#88I'm feeling like this is early days of a disaster in Silicon Valley. We're at the first or second domino teetering right now. I hope a Sequoia or KPB will step up and save the bank, otherwise a lot of their portfolio investments are about to start missing payrolls.
I can't count how many times I've read similar comments on HN in the last 10yrs
I hate comments like this. Bad things just don't happen anymore just because the last 10 years of doomsday predictions turned out to be wrong?
Re: SVB in talks to sell itself after attempts to raise capital fail
#89Earlier quoted context omitted.
Playing out this scenario: Will missing payrolls result in layoffs/resignations? Thus, increasing unemployment rate that the FED desires. If contagion doesn’t spread outside of tech/startup, does the government have any incentive to intervene? Maybe this is not too big to fail. A sale seems like the most likely scenario out of this liquidity problem (insolvency). It’ll be dirt cheap and has to make sense to its buyer…
Supposedly these jobs are the “good” jobs to still have around no matter what because, again, supposedely, they create innovation, which innovation then creates an increase in productivity (among other things), which increase in productivity has been one of the Holy Grails of mainstream economics for the last half century (with the FED being a pillar of said mainstream economics). So, in that light, losing these jobs…
It’s the tide going out - we’ll see who’s swimming naked.
Re: SVB in talks to sell itself after attempts to raise capital fail
#90Earlier quoted context omitted.
I can't count how many times I've read similar comments on HN in the last 10yrs
most of the last 10 years had near 0% interest rate
It’s really mind boggling that SVB put so much money into bonds with long maturations at essentially zero or negative interest rates.
I wonder how many others did similar?