6 ms·

I 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 ban

I 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 ago
There 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 ago
  There 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 ago
    For 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 ago
  A 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 ago
Its 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.
- dannyw 4y ago
  At one point Peloton had a market cap of $60B; was that 35B real? At this point, does SVB have positive brand value anymore, or are they negative?
  - gen220 4y ago
    This reminds me a lot of the american express crisis that led berkshire hathaway to buy in 1998. SVB has positive brand value and (much more importantly) positive book value. At $16bn market cap EOD two days ago, they are also a relative minnow in the banking world. This slip-up is tarnishing to their management, but the main side-effect is that it makes them a prime acquisition target.
niij 4y ago
> FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow. is there precedent for that?
- alex_young 4y ago
  The current limit is the result of such action in 2008: https://archive.fdic.gov/view/fdic/3388 https://archive.fdic.gov/view/fdic/3388
  - jpmattia 4y ago
    They went beyond it for several banks: To my knowledge, nobody lost money in the dozens of banks that the FDIC closed in the 2008 meltdown, despite several depositors being beyond the FDIC limits.
    - pyrale 4y ago
      Did they even have that power in 2008? I remember they issued a statement about how they could have avoided losses for creditors, had they properly liquidated Lehman Brothers [1]. [1]: https://www.fdic.gov/regulations/reform/lehman.html https://www.fdic.gov/regulations/reform/lehman.html
      - jpmattia 4y ago
        > Did they even have that power in 2008? I don't remember tbh, but IndyMac (in July 08) was before Lehman (in Sept) so I think the answer is yes.
    - SkyPuncher 4y ago
      My impression has always been the limit has been designed to accommodate a "worse case scenario" where many, many banks need to be saved. If it's only a handful, it's in the gov't interest to ensure that businesses and people don't loose their savings.
    - TMWNN 4y ago
RC_ITR 4y ago
The logic is as follows: This is a liquidity problem (so far). This isn’t because loans went bad or anything, just that they needed cash quick and had to fire sale things (the things they took losses on were US Treasuries. Mostly.) They still have a big loan book that is probably worth more than their liabilities. A large player with liquidity could get those loan assets on the cheap if they agree to provide the short term capital liquidity (a reassuring name also probably stems any bank run risk). Also the FDIC is pay in pay out insurance. The commercial accounts at SVB are in the hundreds of millions and no payments were made for those accounts. The FDIC probably won’t help.
- hd95489 4y ago
  We’re calling it a liquidity problem only because they don’t have to mark to market. In reality it’s a solvency problem, they lost a shit ton of money by buying bonds at 0-2% that are worth 50-70% value because equivalent bonds pay 5-6%. In theory they could hold that shit to maturity but in practice they can’t because some folks want money now and all depositors will want higher interest on deposits eventually to match market rates.
- jpmattia 4y ago
  > This is a liquidity problem (so far). How is that known currently? Edit: As opposed to a solvency problem?
  - nemo44x 4y ago
    Because they sold long term bonds for a huge loss so they could create liquidity.
    - jpmattia 4y ago
      I meant as opposed to a solvency problem (edited above.)
      - RC_ITR 4y ago
        You can look at page 19 of [0] and make a call for yourself. What we know happened is that they sold US treasuries for less than they paid. They did this because people withdrew money faster than they expected. If that has an impact on their loan book (mostly loans to investors), at the very least, that line of connection has not yet been drawn. [0]https://s201.q4cdn.com/589201576/files/doc_financials/2022/q4/Q4_2022_IR_Presentation_vFINAL.pdf https://s201.q4cdn.com/589201576/files/doc_financials/2022/q...
crisdux 4y ago
I'm spitballing here but it could be an opportunity for another bank to expand into a new market and acquire new customers. SVB has a unique position in the market, as they specialize in catering to the financial needs of industries such as technology, life science, healthcare, private equity, and venture capital.
- finfrastrcuture 4y ago
  Spot on, a ton of Directors / MDs are rushing to push this in front of their leadership (whoever 'leads' the acquisition will no doubt burnish their personal brand / career path /s). That said, if I'm an SVB customer...do I want to stick with the bank that's had this issue? Even so, would I want to bank with the acquirer?
  - newsclues 4y ago
    Seems like much of the SVB customer base doesn't have a/much choice with who will provide banking for them at the early stage. Seems like the reason for acquiring this risking market would be to transition your the clients who succeed into the parent bank for their future banking needs. Sure you will get a bunch of small/medium sized clients for a mega bank, but they are just fishing for a couple giant paydays and want the next Apple or Amazon to start banking with them.
- MrMan 4y ago
  these specialist banks are not worth much, there is no retail banking advantage to having tech companies as clients. the individual people who run the companies are most likely already wealth management clients of the same banks that might acquire SVB.
  - crisdux 4y ago
    I believe the customers they would be going after are commercial entities, not retail.
almost_usual 4y ago
Supposedly 150b funds are uninsured and they are already borrowing 15b from the fed which is as much as their capital. https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496
deleted 4y ago
[deleted]
ejb999 4y ago
why should the taxpayers be put on the hook for that?
- jpmattia 4y ago
  > 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 systemic meltdown) it doesn't cost the taxpayers directly.
  - ejb999 4y ago
    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.
    - flyinglizard 4y ago
      The entire financial system is built on trust and stability. When a bank is rescued its shareholders suffer (by selling at a loss, nationalization, whatever). It’s not a positive outcome for them, but rescuing a bank has big implications for systematic stability.
      - weard_beard 4y ago
        Taking a vitamin C pill and avoiding the doctor saves money fighting cancer. What’s your point?
    - jonas21 4y ago
      Why? When the FDIC steps in, the bank doesn't get to go on operating like nothing happened. They're shut down, the owners of the bank lose their money, and management is fired. It's the depositors who are bailed out.
toast0 4y ago
FDIC is probably involved with this sale already. But even if not, they likely will be soon, might as well start dilligence and figure out what your price would be.
- jpmattia 4y ago
  I don't doubt it. The classic time for FDIC to invade a corp headquarters is Friday afternoon (the cliché is that they show up with lots of pizza) so they have max time to resolve it before opening of biz on Monday. I think odds are good that we see that this weekend. Edit: aaand FDIC couldn't wait until COB https://finance.yahoo.com/news/fdic-closes-silicon-valley-bank-after-bank-fails-to-raise-new-capital-165322938.html https://finance.yahoo.com/news/fdic-closes-silicon-valley-ba...
015a 4y ago
> I don't understand the incentive for a bank to buy them at this point If the natural incentive of the bank's assets isn't enough, its literally the job of the FDIC to add that incentive. That's what the FDIC does. "We'll pay you $100M to continue operations of this bank" this happened dozens upon dozens of times during 2008. The insurance component of their mandate is an absolute last ditch "holy shit actually they had nothing it was all smoke and mirrors" tool. It won't come to that because, well first of all, regulations don't allow banks to get to that point anymore, but also: SVB is actually a solid bank, who made a couple fuck-ups, caused a panic, and their customers are generally more agile and cutthroat than industry average. There are so many tools they, the industry, and regulators have to stabilize things that if you walked into the meetings that are happening about this right now and said "we should raise our insurance guarantees above $250k" you'd be laughed out of the room. The FDIC doesn't give a shit about stemming outflows from SVB. The FDIC cares about the system, not SVB's bottom line or stock price. Customers should be able to withdraw their money. If they're even involved at this point (and that's a huge if), their primary concern would be to make sure customers still can get money out, not changing the incentive structure or adding limitations toward getting that money out.
deleted 4y ago
[deleted]
jpmattia 4y ago
Edits on my original comment are locked, but worth noting: Apparently the banks also thought there was no incentive to buy before the FDIC stepped in as well. > 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. The FDIC chose instead to shut the bank in the middle of the business day. They apparently don't see this as inciting a systemic event, where other uninsured deposits at other banks will now begin flowing out. That imho is not playing it safe, given some of the price drops in the other banks today.

moondistance 4y ago

There 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 ago
There 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 ago
  For 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 ago
A 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 ago

Its 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.

dannyw 4y ago
At one point Peloton had a market cap of $60B; was that 35B real? At this point, does SVB have positive brand value anymore, or are they negative?
- gen220 4y ago
  This reminds me a lot of the american express crisis that led berkshire hathaway to buy in 1998. SVB has positive brand value and (much more importantly) positive book value. At $16bn market cap EOD two days ago, they are also a relative minnow in the banking world. This slip-up is tarnishing to their management, but the main side-effect is that it makes them a prime acquisition target.

niij 4y ago

> FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow. is there precedent for that?

alex_young 4y ago
The current limit is the result of such action in 2008: https://archive.fdic.gov/view/fdic/3388 https://archive.fdic.gov/view/fdic/3388
- jpmattia 4y ago
  They went beyond it for several banks: To my knowledge, nobody lost money in the dozens of banks that the FDIC closed in the 2008 meltdown, despite several depositors being beyond the FDIC limits.
  - pyrale 4y ago
    Did they even have that power in 2008? I remember they issued a statement about how they could have avoided losses for creditors, had they properly liquidated Lehman Brothers [1]. [1]: https://www.fdic.gov/regulations/reform/lehman.html https://www.fdic.gov/regulations/reform/lehman.html
    - jpmattia 4y ago
      > Did they even have that power in 2008? I don't remember tbh, but IndyMac (in July 08) was before Lehman (in Sept) so I think the answer is yes.
  - SkyPuncher 4y ago
    My impression has always been the limit has been designed to accommodate a "worse case scenario" where many, many banks need to be saved. If it's only a handful, it's in the gov't interest to ensure that businesses and people don't loose their savings.
  - TMWNN 4y ago

RC_ITR 4y ago

The logic is as follows: This is a liquidity problem (so far). This isn’t because loans went bad or anything, just that they needed cash quick and had to fire sale things (the things they took losses on were US Treasuries. Mostly.) They still have a big loan book that is probably worth more than their liabilities. A large player with liquidity could get those loan assets on the cheap if they agree to provide the short term capital liquidity (a reassuring name also probably stems any bank run risk). Also the FDIC is pay in pay out insurance. The commercial accounts at SVB are in the hundreds of millions and no payments were made for those accounts. The FDIC probably won’t help.

hd95489 4y ago
We’re calling it a liquidity problem only because they don’t have to mark to market. In reality it’s a solvency problem, they lost a shit ton of money by buying bonds at 0-2% that are worth 50-70% value because equivalent bonds pay 5-6%. In theory they could hold that shit to maturity but in practice they can’t because some folks want money now and all depositors will want higher interest on deposits eventually to match market rates.
jpmattia 4y ago
> This is a liquidity problem (so far). How is that known currently? Edit: As opposed to a solvency problem?
- nemo44x 4y ago
  Because they sold long term bonds for a huge loss so they could create liquidity.
  - jpmattia 4y ago
    I meant as opposed to a solvency problem (edited above.)
    - RC_ITR 4y ago
      You can look at page 19 of [0] and make a call for yourself. What we know happened is that they sold US treasuries for less than they paid. They did this because people withdrew money faster than they expected. If that has an impact on their loan book (mostly loans to investors), at the very least, that line of connection has not yet been drawn. [0]https://s201.q4cdn.com/589201576/files/doc_financials/2022/q4/Q4_2022_IR_Presentation_vFINAL.pdf https://s201.q4cdn.com/589201576/files/doc_financials/2022/q...

crisdux 4y ago

I'm spitballing here but it could be an opportunity for another bank to expand into a new market and acquire new customers. SVB has a unique position in the market, as they specialize in catering to the financial needs of industries such as technology, life science, healthcare, private equity, and venture capital.

finfrastrcuture 4y ago
Spot on, a ton of Directors / MDs are rushing to push this in front of their leadership (whoever 'leads' the acquisition will no doubt burnish their personal brand / career path /s). That said, if I'm an SVB customer...do I want to stick with the bank that's had this issue? Even so, would I want to bank with the acquirer?
- newsclues 4y ago
  Seems like much of the SVB customer base doesn't have a/much choice with who will provide banking for them at the early stage. Seems like the reason for acquiring this risking market would be to transition your the clients who succeed into the parent bank for their future banking needs. Sure you will get a bunch of small/medium sized clients for a mega bank, but they are just fishing for a couple giant paydays and want the next Apple or Amazon to start banking with them.
MrMan 4y ago
these specialist banks are not worth much, there is no retail banking advantage to having tech companies as clients. the individual people who run the companies are most likely already wealth management clients of the same banks that might acquire SVB.
- crisdux 4y ago
  I believe the customers they would be going after are commercial entities, not retail.

almost_usual 4y ago

Supposedly 150b funds are uninsured and they are already borrowing 15b from the fed which is as much as their capital. https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496

deleted 4y ago

[deleted]

ejb999 4y ago

why should the taxpayers be put on the hook for that?

jpmattia 4y ago
> 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 systemic meltdown) it doesn't cost the taxpayers directly.
- ejb999 4y ago
  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.
  - flyinglizard 4y ago
    The entire financial system is built on trust and stability. When a bank is rescued its shareholders suffer (by selling at a loss, nationalization, whatever). It’s not a positive outcome for them, but rescuing a bank has big implications for systematic stability.
    - weard_beard 4y ago
      Taking a vitamin C pill and avoiding the doctor saves money fighting cancer. What’s your point?
  - jonas21 4y ago
    Why? When the FDIC steps in, the bank doesn't get to go on operating like nothing happened. They're shut down, the owners of the bank lose their money, and management is fired. It's the depositors who are bailed out.

toast0 4y ago

FDIC is probably involved with this sale already. But even if not, they likely will be soon, might as well start dilligence and figure out what your price would be.

jpmattia 4y ago
I don't doubt it. The classic time for FDIC to invade a corp headquarters is Friday afternoon (the cliché is that they show up with lots of pizza) so they have max time to resolve it before opening of biz on Monday. I think odds are good that we see that this weekend. Edit: aaand FDIC couldn't wait until COB https://finance.yahoo.com/news/fdic-closes-silicon-valley-bank-after-bank-fails-to-raise-new-capital-165322938.html https://finance.yahoo.com/news/fdic-closes-silicon-valley-ba...

015a 4y ago

> I don't understand the incentive for a bank to buy them at this point If the natural incentive of the bank's assets isn't enough, its literally the job of the FDIC to add that incentive. That's what the FDIC does. "We'll pay you $100M to continue operations of this bank" this happened dozens upon dozens of times during 2008. The insurance component of their mandate is an absolute last ditch "holy shit actually they had nothing it was all smoke and mirrors" tool. It won't come to that because, well first of all, regulations don't allow banks to get to that point anymore, but also: SVB is actually a solid bank, who made a couple fuck-ups, caused a panic, and their customers are generally more agile and cutthroat than industry average. There are so many tools they, the industry, and regulators have to stabilize things that if you walked into the meetings that are happening about this right now and said "we should raise our insurance guarantees above $250k" you'd be laughed out of the room. The FDIC doesn't give a shit about stemming outflows from SVB. The FDIC cares about the system, not SVB's bottom line or stock price. Customers should be able to withdraw their money. If they're even involved at this point (and that's a huge if), their primary concern would be to make sure customers still can get money out, not changing the incentive structure or adding limitations toward getting that money out.

deleted 4y ago

[deleted]

jpmattia 4y ago

Edits on my original comment are locked, but worth noting: Apparently the banks also thought there was no incentive to buy before the FDIC stepped in as well. > 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. The FDIC chose instead to shut the bank in the middle of the business day. They apparently don't see this as inciting a systemic event, where other uninsured deposits at other banks will now begin flowing out. That imho is not playing it safe, given some of the price drops in the other banks today.