Are SVB's books plainly fraudulent, or are they just in a very tight spot because they borrowed too long? That is: is SVB actually a worthwhile asset if you have plenty of liquidity to weather the storm that SVB could not on its own?
SVB in talks to sell itself after attempts to raise capital fail
91–100 of 310 posts
Re: SVB in talks to sell itself after attempts to raise capital fail
#92Earlier quoted context omitted.
The FDIC isn't funded from general taxation, it's funded by a specific levy on banks.
If it were to ever run out, though, it's generally assumed taxpayers would make up the rest.
No, the bank could be allowed to collapse or the Fed could arrange a meeting (LTCM style) and basically force a buyout. Nothing is assumed.
Re: SVB in talks to sell itself after attempts to raise capital fail
#93Earlier 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…
Employers are legally on the hook for payroll so what will happen is management/stock holders will foot the bill.
I think the implication is that companies won't have enough cash on hand to make payroll in future periods, so will layoff staff to cut payroll expensess.
Re: SVB in talks to sell itself after attempts to raise capital fail
#94Earlier quoted context omitted.
> why should the taxpayers be put on the hook for that? One reason that it was done in the past was because it saves the taxpayers money by bailing out a single meltdown rather than something systemic. But you should recognize: The taxpayers back up the FDIC, but singleton meltdowns are paid out of the insurance fund, which is paid into by the banks themselves. As long as that fund does not get exhausted (ie a system…
and then makes the next failure even more likely - companies will take on more and more risks if they know they will be bailed out. I for one am tired of privatizing the profits, and socializing the losses.
The word you’re looking for is ‘moral hazard’.
Re: SVB in talks to sell itself after attempts to raise capital fail
#95One 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.
Re: SVB in talks to sell itself after attempts to raise capital fail
#96One 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…
The issue is that a startup needs that capital right now. They cannot wait for bankruptcy courts to redistribute.
Re: SVB in talks to sell itself after attempts to raise capital fail
#97Earlier quoted context omitted.
The same Sequoia who bet the farm on FTX? I'll sit tight and wait for the FDIC. They have ample authority to do an orderly liquidation in a worst case scenario.
Well if a startup just closed a $20MM round they'll get back $250,000 after a long unwinding from the FDIC. So that's a pretty big haircut. I look to Sequoia because, of any VC fund, they are the most likely to be able to pull off a takeover of SVB. I am still gobsmacked that they invested hundreds of millions in a company with no board or CFO (FTX)
I mean if you put $20MM into an account with only $250k of insurance you miiiiight deserve to go out of business.
Re: SVB in talks to sell itself after attempts to raise capital fail
#98I'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.
If someone saves the bank, it'd have to be someone who a vested interest in making sure the bank doesn't fail. As it stands, the bank has negative value.
Re: SVB in talks to sell itself after attempts to raise capital fail
#99Earlier quoted context omitted.
why should the taxpayers be put on the hook for that?
> why should the taxpayers be put on the hook for that? One reason that it was done in the past was because it saves the taxpayers money by bailing out a single meltdown rather than something systemic. But you should recognize: The taxpayers back up the FDIC, but singleton meltdowns are paid out of the insurance fund, which is paid into by the banks themselves. As long as that fund does not get exhausted (ie a system…
The only systemic risk of SVB failing is a lot of SF-Bay Area Tech Bro founders can no longer afford their Teslas and Mansion rentals anymore.
Re: SVB in talks to sell itself after attempts to raise capital fail
#100Earlier quoted context omitted.
Rising interest rates is what’s different this time around
rising interest rates, and an economy that is beginning to falter.
The doomsayers have shifted from "we've been in a recession for six months, they just changed the definition of a recession" to "an economy that is beginning to falter."
I'll take that as a sign that the economy remains robust.