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Very 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

Very 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 ago
Supposedly 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 ago
  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.
  - 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 ago
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.
- aliljet 4y ago
  Wasn't this a famously bad transaction for JPM?
  - sgerenser 4y ago
    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-and-wamu-was-it-a-good-deal.aspx 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.
    - MrMan 4y ago
      it was a tiny deal in terms of the outlay, and I think it was positive to natural long term. not a very risky move for JPM
nemo44x 4y ago
They have assets they could sell for a loss or they could sell to someone with liquidity that doesn't have to sell those assets. The buyer also gets the SVB business which is really unique and great - a true asset in itself. This is a better outcome for SVB share holders as they get some value.
treis 4y ago
There's a difference between being bankrupt and being worthless. Bankrupt means you can't pay the bills you owe today. You can have enough assets to meet the obligations but be unable to turn them into cash fast enough. Another company with cash can buy the company, use their cash on hand to pay the bills, and then sell the assets in less of a panic. If the return on those assets is worth more than the cost to buy the company and cash outlay then buying company makes money.

almost_usual 4y ago

Supposedly 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 ago
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.
- 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 ago

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.

aliljet 4y ago
Wasn't this a famously bad transaction for JPM?
- sgerenser 4y ago
  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-and-wamu-was-it-a-good-deal.aspx 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.
  - MrMan 4y ago
    it was a tiny deal in terms of the outlay, and I think it was positive to natural long term. not a very risky move for JPM

nemo44x 4y ago

They have assets they could sell for a loss or they could sell to someone with liquidity that doesn't have to sell those assets. The buyer also gets the SVB business which is really unique and great - a true asset in itself. This is a better outcome for SVB share holders as they get some value.

treis 4y ago

There's a difference between being bankrupt and being worthless. Bankrupt means you can't pay the bills you owe today. You can have enough assets to meet the obligations but be unable to turn them into cash fast enough. Another company with cash can buy the company, use their cash on hand to pay the bills, and then sell the assets in less of a panic. If the return on those assets is worth more than the cost to buy the company and cash outlay then buying company makes money.