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SVB in talks to sell itself after attempts to raise capital fail
- endisneigh 4y agothat was fast
- wpietri 4y ago"How did you go bankrupt?" "Two ways. Gradually, then suddenly.” ― Ernest Hemingway, The Sun Also Rises
- dannyw 4y agoHow is it possible for SVB to not have a bank run at this point?
- bratao 4y agoI think that very soon they will halt withdraws. Everyone I know already did it or is doing today. Many only had a SVB account, and need some time to open another account to transfer it. (International Startups)
- arlcode 4y agoI don't have any experience, but wouldn't they be extra screwed if the bank goes down? They'll probably be in line with anybody else and being foreign makes enforcement and lawsuits so much more expensive and difficult. I guess that's a price they were willing to pay to get more favorable conditions in SV in the past as opposed to whatever they could find locally.
- jejeyyy77 4y agoLiterally transfer the money anywhere at this point.
- capableweb 4y agoYou literally cannot just transfer the money anywhere if it's money meant for a business. In many countries, just transferring that money to your personal account would be illegal. And many banks won't allow you to open a business account and directly after transfer millions of funds to it, without a long process of due diligence (AML/KYC). There is also a bunch of anti-terrorism (funding) laws that might prevent things from being done in just hours, especially during the weekend as many (most?) banks are outright closed during the weekend.
- jejeyyy77 4y agoNot true for the US re: moving money to your personal account being automatically illegal.
- capableweb 4y agoThe context is "International Startups" so I'm assuming that means Non-US startups.
- jmillikin 4y agoThis headline is part of the bank run they are currently experiencing.
- FormerBandmate 4y agoThey’re having one. This sale is almost certainly partially brokered by the FDIC, like Silvergate was, some big bank that can handle the outflows will probably acquire them
- hd95489 4y agoIf you aren’t transferring out you are an idiot at this point. Even if you don’t lose money you will loose access during the failure. My guess is the feds come in today and do it. They love to close banks on a Friday and work it through the weekend
- rvz 4y ago[flagged]
- KfactorSam 4y agoCan you explain this a bit?
- rvz 4y agoThis explains it all: https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496 And a VC firm getting caught in the exposure to SVB: https://twitter.com/BloombergTV/status/1634131376743108608 https://twitter.com/BloombergTV/status/1634131376743108608
- FormerBandmate 4y agoAnd there. They’re Wachovia’d/Bear’d. Big stuff, they were bigger than IndyMac and almost as big as WaMu. I doubt banks will actually start going bankrupt but it’s certainly concerning, the European IBs are important to watch
- jpmattia 4y agoI don't understand the incentive for a bank to buy them at this point, because any potential buyer might as well wait until the FDIC steps in to resolve the bank. Any banking wizards at HN who can explain the dynamics? edit: At the very least, FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow.
- moondistance 4y agoThere has been interest in acquiring SVB for a long time. There will be multiple bidders and a deep discount. Suspect a sale will happen this weekend.
- rcme 4y agoThere was interest when SVB was solvent. Right now, SVB has negative value. E.g. you'd need to buy SVB for X and then pay an additional Y to balance the books. Y is likely to be a certain percentage of deposits and could be quite large. The only groups that will be interested in SVB are likely VC funds that are worried about an SVB collapse disrupting operations at the VC's startups.
- cwkoss 4y agoFor making customer deposits whole, someone will get to become an iconic bay area institution. Not worth $20B to me, but there are dozens of vain people with billions that may disagree.
- TMWNN 4y agoA Bloomberg reporter said that Goldman people had told her many times that they would love to own SVB, but that it was too expensive. Not anymore!
- rr808 4y agoIts obviously risky. A year ago it had a market cap of $35B, if you can buy for next to nothing it could be worth it. Depends a lot if there is a big hole in the accounts and if the old customers come back.
- deleted 4y ago[deleted]
- rickreynoldssf 4y agoI'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.
- tikkun 4y agoHow so?
- rickreynoldssf 4y agoIf startups have their funds in SVB, which most do, and they can't wire those funds to ADP or whatever there's no payroll. I know this first hand because when I had a startup we wired upcoming payroll to ADP every two weeks. One week our bank (not SVB) made a mistake and payroll didn't go out. It was a mess but thankfully BofA bent over backwards to fix things.
- dmix 4y agoI can't count how many times I've read similar comments on HN in the last 10yrs
- cbayram 4y agoRising interest rates is what’s different this time around
- ejb999 4y agorising interest rates, and an economy that is beginning to falter.
- datavirtue 4y agoCitation needed.
- deleted 4y ago[deleted]
- almost_usual 4y agoNot looking good. https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496
- stephen_g 4y agoInteresting. Looking at their website, I don’t get how SVB was supposed to work. Retail and commercial banks (as opposed to investment banks) make almost all their money from lending, especially against fairly safe assets like real-estate, but SVB doesn’t seem to have a lot of those kind of lending products advertised. Successful banks have deposits just because they need the transfers coming in to keep up liquidity in the payment system, and because they’re involved in the mechanics of lending (actually created as part of lending, not actually “lent out” themselves). But they generally don’t actually make any serious money from having deposits themselves (because there’s no good way to do that in a way that is risk-free enough)… The lending keeps money coming in (repayments), makes money (interest), etc. - so how was SVB supposed to make money and maintain liquidity without much of that?
- cft 4y agoThey did bridge loans back in the day: you are running out of cash but it's fairly certain you are getting the next capital round, and that loan was secured by a special class of shares that they could either sell at the next round or keep
- donedealomg 4y ago[dead]
- aliljet 4y agoVery 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.
- almost_usual 4y agoSupposedly they already have a 15b borrow from the fed. If that’s their only capital then I believe they’re out of options.
- aliljet 4y agoDo 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.
- almost_usual 4y ago> Do you mean they've taken money from the fed to capitalize the bank already? Right https://twitter.com/FedGuy12/status/1634039424920195072 https://twitter.com/FedGuy12/status/1634039424920195072
- sgerenser 4y agoIt’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.
- aliljet 4y agoWasn't this a famously bad transaction for JPM?
- gghffguhvc 4y agoMy prediction. Startups with lines of credit / venture debt won’t be able to move all money out under terms of those deals and will be the bag holders when bank run takes SVB to zero by Tuesday next week.
- jejeyyy77 4y agoNot your keys, not your coins.
- jejeyyy77 4y agoThis stuff makes crypto exchange drama look like child’s play.
- zomglings 4y agoCentralized crypto exchanges are not a safe haven. Never have been. It does make fully on-chain USDC and DAI stablecoins look like refuges though.
- jejeyyy77 4y agoYou’re right. I updated my comment.
- Ekaros 4y ago"Money" is there, but it is just worth less than before. Unless you are willing to wait for long time. They say treasuries are as good as cash, but seemingly it is not entirely so.
- yellow_postit 4y agoWill 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.
- cragfar 4y agoMark downs are partially what caused SVB to spiral.
- ttul 4y agoAny 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.
- eqmvii 4y agoCNBC has been reporting all morning that their deposits are evaporating too fast for a sale. I’m expecting receivership before Monday.
- kgwgk 4y ago> I’m expecting receivership before Monday. It’s done.
- samstave 4y agoWhere can one find a list of companies that have primary banking through SVB?
- ttul 4y agoIn SVB’s computer.
- ackbar03 4y agoThey should have bought bitcoin instead. Oh wait, silvergates also in trouble
- tenpies 4y agoI know you're being silly, but there's an interesting observation there. Silvergate's failure doesn't affect BTC on paper, yet Bitcoin did go down. SVB's failure doesn't affect the USD on paper, yet the dollar is down today[1]. All currencies, fiat or otherwise, are affected by catastrophic events in their ecosystem. The folks having a good day today are the precious metals. --- [1] Although to be fair, there are a myriad of factors at play in FX, whereas Bitcoin probably has few. However, "bank failure" and the US Treasury announcing they are monitoring some small and regional banks, doesn't fill one with confidence.
- spaceman_2020 4y agoWell, Bitcoin hasn't had to be bailed out yet. It's alright if things fail or lose value. That's a natural part of markets. Taxpayers money going to bail out banks, otoh, is pretty much what started Bitcoin. "Chancellor on the Brink of Second Bailout for Banks" - still encoded in the genesis BTC block.
- rich_sasha 4y agoOne 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%.
- rcme 4y agoNo, 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.
- rich_sasha 4y agoYes, insolvent, but the money doesn't go poof. I never traded cash bonds but would struggle to imagine it would be hard to liquidate. Sure, over a week, but surely SVB can't be a major bondholder.
- Ekaros 4y agoThey are easy to liquidate. But not at the face value. For that you need to wait until maturity. Principle is simple. Why would you buy from someone a piece of paper saying someone else(even government) will pay you 1,5% a year. When you could directly buy from then similar paper paying 4%.
- 4y ago
- Waterluvian 4y agoAre 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?
- pgwhalen 4y agoIs their any evidence their books are fraudulent? I’m curious why you bring that up.
- Waterluvian 4y agoI was trying to understand why all the doomsaying. To me it seems like this is a bank with perfectly sane books but making moronic operating choices. So unless there’s some clear as day fraud I wasn’t aware of, someone with plenty of liquidity could buy them for a steal and benefit once all those long investments matured.
- ancorevard 4y agoIn hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday. However, sad to see what looks to be another government caused implosion. - First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditional lending it back out was not going to work, the market was already flooded with money from the government. So they sadly locked themselves in those MBSs. - Then the gov finally reacts to their own stimulus and zero interest rates programs and they rapidly raise interest rates in attempts to lower inflation. - And as a result, the MBSs that SVB holds are underwater in mark to market. Investments into startups fall, so no more influx of customer deposits into SVB. And finally, due to the difficult market (and VC market), all the startups are drawing down their deposits rapidly through their current burn rate. And SVB ends belly up.
- almost_usual 4y agoI’d argue preventing a total financial collapse in 2020 is more important than SVB and some startups failing.
- twoodfin 4y agoSure, but it's debatable whether spending a few $T more in early 2021 was more helpful than not.
- CydeWeys 4y agoYup. FDIC insurance exists for this reason -- you can let a bank that made bad decisions fail without causing a chain reaction through the economy.
- rootusrootus 4y agoIt's great, but it punishes the smaller banks while leaving the 'too big to fail' conglomerates in a position to be bailed out by taxpayers. We need to chop down any bank that poses a systemic risk so that it's small enough for the FDIC to handle.
- htrp 4y agoTurns out the 500mn PE sale to General Atlantic has fallen through.
- qwertyuiop_ 4y agoSomeone realized the emperor has no clothes. Its only a matter of time that rest of the crowd realizes that emperors court doesn't have clothes either.
- htrp 4y agoThe FDIC / Fed are currently on-site working on SVB resolution.
- gitfan86 4y agoThe fed will take over all of these assets and shutdown the bank and make a profit doing so. The fed has a huge advantage in that they can just print money, buy assets that deliver 1% returns and when those assets mature delete the printed money. The fed is basically leveraged to infinity.
- ksajadi 4y agowhat's your source?
- MrMan 4y agoBloomberg / the real world
- adrianmonk 4y agohttps://www.fdic.gov/news/press-releases/2023/pr23016.html https://www.fdic.gov/news/press-releases/2023/pr23016.html https://news.ycombinator.com/item?id=35096877 https://news.ycombinator.com/item?id=35096877
- revicon 4y agoI hadn't heard this particular bit of info yet, but doing a quick search and yup, since last night. https://www.bloomberg.com/news/articles/2023-03-10/us-regulators-descend-on-silicon-valley-bank-to-assess-finances https://www.bloomberg.com/news/articles/2023-03-10/us-regula...
- jschveibinz 4y agoStartups with good VC and investor relationships will most likely make payroll and pay bills through short term loans from the investors until they can access their funds. But it is a good lesson in money management…something about eggs and just one basket?
- cddotdotslash 4y agoHere’s somethingI don’t understand. Say you raise $100m funding round. Investors just give you the entire amount, in cash? And companies just put that entire cash amount in a bank? It seems like it would be better for VCs to keep the money, invest it (in, I don’t know, the S&P500), and then pay out to the companies on a monthly basis or some other terms. I can’t fathom how there are hundreds of companies, each with 10s of millions of dollars, just sitting in a zero interest bank account?
- swift532 4y agoThey don't have to be sitting there. A startup with a good person running finances will also have short term investments (should not be S&P though). Not sure about all startups in general but in my experience so far, this is what happens.
- zamnos 4y agoLet's assume most companies don't generally have drooling morons for CFOs because, well, they don't. The majority of unneeded funds are invested somewhere, most likely a managed fund. So the amount of cash sitting at SVB earning zero percent interest is relatively small. But when you have 30 people making $120/yr, and payroll is due this week ($300k), and your $1m/month AWS/GCP bill is also due this week (skip the rent of the office since everyone's working remote); the SVB account will have $1.3 million in it to pay upcoming obligations.
- quesera 4y agoSome startups just moved excess funds into a money market account at SVB (managed by e.g. BlackRock).. I'm not sure who is ultimately custodial of that money, and whether it's at risk today. My instinct is that it's at BlackRock, any idea if that's true?
- batmaniam 4y agoWhat made SVB so attractive to startup founders? All the news reports I'm reading is saying that's their target customer. What advantages did SVB provide that other brand named bank didn't? Wouldn't it have been safer to put your startup's money in Bank of America, or JP Morgan, etc? I've never heard of SVB until the crash.
- bragr 4y agoTheir primary business was making large loans to startups so they didn't have to sell shares to raise capital. Then it sounds like they leveraged that business to sell other financial products, e.g. mortgages etc
- jedberg 4y agoIt was a lot of little things, but the main thing was that the understood startups so they would take into account your funding as well as your LOIs when making loan decisions, whereas most banks would not because they didn't understand them. That made it easier to get free cash when all of your startup's assets were basically owed money.
- listenallyall 4y agoOr maybe the conservative old guard banks do understand, that startups without reliable cash flow, or on a growth-at-all-costs trajectory, are poor lending prospects. Seems whatever you claim that SVB "understood" led to its demise.
- jedberg 4y agoWhat appears to have led to the demise was when they branched out beyond startups into more traditional banking activities like mortgage backed securities.
- Dwolb 4y agoThey had good relationships with VC funds to top up portfolio companies with extra cash (debt). SVB would be lenient to the entire portfolio in exchange for access to the best performing companies. i.e. Company A is a Series A start-up that needs non-dilutive financing to bridge itself to the next round. SVB would be willing to lend when no one else would. In exchange, VC’s would introduce SVB to much healthier growth stage or pre-IPO companies that need a banking partner.
- hnthrowaway0315 4y agoI'm wondering did SIVB hedge the risks properly? Can't imagine that they are hugely net long/short on some assets.
- spaceman_2020 4y agoBanks and exchanges are practically licenses to print money. It really doesn't take much to run their profitably. All you have to do is not get too greedy and you can have an almost neverending trickle of profits. How do these keep blowing up?
- MrMan 4y agoSVB is officially been closed and is in FDIC process. Real bank stocks are all up today, so that tells you all you need to know.
- NickC25 4y ago11:41 AM - SVB has officially failed, and is in receivership.
- lapcat 4y agoIt's over. "FDIC Takes over Silicon Valley Bank" https://news.ycombinator.com/item?id=35096877 https://news.ycombinator.com/item?id=35096877
- vishnugupta 4y agoThe bank has officially failed, as per FDIC. "Silicon Valley Bank is the first FDIC-insured institution to fail this year." https://www.fdic.gov/news/press-releases/2023/pr23016.html https://www.fdic.gov/news/press-releases/2023/pr23016.html
- swyx 4y ago"first... this year" is it me or is that unintentionally foreboding
- ebiester 4y agohttps://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/ https://www.fdic.gov/resources/resolutions/bank-failures/fai... Four failed in 2020. Four failed in 2019. None failed in 2022 or 2018. Banks fail fairly regularly, but it's the size of the bank and the types of deposits that are concerning in this case.
- capableweb 4y agoSVB was the biggest bank in Silicon Valley (2nd in California), and the 18th largest bank in the entire US. I knew this whole thing was big as I personally know a lot of friends use SVB for their startups, but I failed to realize how big deal this is. How can the 16th biggest bank in the country fail so rapidly?
- mgdev 4y agoInterest rates.
- paulddraper 4y ago> so rapidly? Bank runs are rapid. They wouldn't be runs if they weren't.
- ok_dad 4y agohttps://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/ https://www.fdic.gov/resources/resolutions/bank-failures/fai... Most years seem to have a few failed banks, and a lot in the 2008-20011 era, but the past few years don't seem to have as many.
- cameldrv 4y agoI think that this should turn out OK for depositors, hopefully soon. It seems that while the bank essentially has no equity if you mark to market, assets and liabilities are about equal. That means that they have enough money to pay depositors, but no reserve. Given this, it's pretty attractive for a buyer. The buyer just needs to provide some capital to bring the reserves back into compliance.
- tiffanyh 4y agoChess move: Stripe to acquire SVB.
- VoodooJuJu 4y agoLiterally who?
- dang 4y agoRelated ongoing thread: FDIC Takes over Silicon Valley Bank - https://news.ycombinator.com/item?id=35096877 https://news.ycombinator.com/item?id=35096877 - March 2023 (737 comments)