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Emergency bridge loan for SVB customers
- johnbellone 4y agoThe sharks are circling.
- ummonk 4y agoSVB is basically solvent and had a panic bank run. It should be pretty low risk to offer startups credit collateralized against their SVB deposits.
- Blackthorn 4y agoSolvent how? Their 80 billion of 10 year MBS's are sitting on a tremendous loss.
- Yrlec 4y agoJust hold the bond to maturity.
- ivalm 4y agoBut that’s not an option if you have to pay out now.
- hackernewds 4y agoThat's a liquidity crisis
- ummonk 4y agoIt's insolvency if the current market value (not the hold to maturity value) of the assets is less than the liability. As far as I can tell though, SVB was solvent despite its losses, and just needed to raise money to cover reserve requirements after it realized the losses. What did it under was a lack of liquidity after everyone panicked and did a run on the bank, with 45 billion (out of ~175 billion in deposits) in withdrawals overnight.
- user_named 4y agoThere's no reserve requirements
- ivalm 4y agoIt started as a liquidity crisis (do they had to start selling or raise capital), it turned into a solvency crisis (they had to sell even more therefore marking assets as available for sale which made them marked to market). Right now SVB, if fully liquidated, cannot repay all of the deposits.
- zarzavat 4y agoLet’s say I owe $100. If I have assets worth $110 today but they are locked up, and I have to pay back what I owe today, then I’m facing a liquidity crisis. If I have assets worth $90 today, but $110 in a few years, and I have to pay back the money I owe in a few years, then I’m solvent and everything is good. If I have assets worth $90 today, but $110 in a few years, and I have to pay back what I owe today then I’m insolvent.
- Blackthorn 4y agoPeople aren't waiting ten years for their money.
- Aeolun 4y agoI’m inclined to say they will if it guarantees they get it back.
- gruez 4y agoBut a dollar in 10 years is worth less than a dollar today. In either case the result is the same: you take a haircut on the present value of your deposits.
- flangola7 4y agoNo but $1 in ten years will be worth more than $0.50 today.
- Blackthorn 4y agoSpecifically, it's worth about $0.65 today.
- bryfb 4y agoA $100 in 10 years is just not worth $100 today in the current interest rate environment.
- gpm 4y ago> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Per the FDIC
- bryfb 4y agoI thought the follwoing was an interesting analysis: Aside from the fact that those assets don't seem to be valued at the current price (i.e. are marked at cost basis, not market,) much of it is already pledged as collateral. https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496
- ummonk 4y agoThey had 45 billion in withdrawals before they ran out of liquidity and were taken over by FDIC, so that analysis would appear to be incorrect, since it implied they only had 80-55 = 25 billion of liquidity available.
- bryfb 4y agoI think the wording in the FDIC order was that customers were "initiating 42bn of withdrawals."[0] Doesn't mean those went through (in fact many from what I heard didn't.) Still certainly very possible that the analysis is incorrect. [0] https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf?emrc=bedc09 https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...
- ummonk 4y agoAh yeah you're correct good catch.
- deleted 4y ago[deleted]
- SirensOfTitan 4y agoFrom what I understand, the assets were allowed to be on the books at face value, under the assumption they would be held to maturity, but they're worth significantly less on the open market.
- ivalm 4y agoNo, SVB was solvent as long as their assets didn’t have to marked to market, once there was a bank run they became insolvent. If the SVB assets are liquidated they will not cover the deposits.
- hackernewds 4y agoThat's a liquidity crisis, not insolvency. They were invested in long term maturity US treasuries! The safest asset there is (arguably)
- readthenotes1 4y agoThe income from them is safe, but the value of them is not. Same with their mortgage-backed securities.
- JumpCrisscross 4y ago> a liquidity crisis, not insolvency Ish. On a mark-to-market basis they had insufficient reserves. That's closer to insolvency than illiquidity. The mismanaged duration is closer to illiquidity. But not of the sort a lender of last resort could save them from.
- dwater 4y agoAll they had to do was freeze withdrawals for 10 years and it all would have worked out fine.
- doubleunplussed 4y agoRight. But that is exactly the distinction between being illiquid and being insolvent.
- OJFord 4y agoNo it isn't? Not having access to enough quickly enough is a liquidity crisis; not having enough even when it is all liquidated is insolvency.
- 4y ago
- eek2121 4y agolet's say you have an emergency fund of 6x your monthly earnings. Instead of holding that in cash, you put that money into US treasuries at a price of 1:1. When yields rise, prices fall. Remember that. Now let's say you need to access that emergency fund, and the amount you need is 90% of it. However, what you've found is that treasury prices have fallen so far, your investment is now only worth 50% of what it was before unless you hold it for another 5 years. If you don't sell now, you will be homeless. If you do sell now, you buy a bit of time and can possibly get a loan, and barring that, you will be homeless. That is what happened to SVB.
- ummonk 4y agoI understand how they ended up with losses, having bought long duration securities at the top. I'm saying they were still solvent despite the losses. They just weren't liquid.
- mbreese 4y agoSolvent relative to the maturity date on the bonds though, right? If you need a closer date (because you need to fulfill customer cash flow requests), then solvent plus illiquid can become insolvent quickly.
- ummonk 4y agoNo I think more likely than not it's outright solvent if you look at current market value of the bonds. We'll find out by Monday whether it has been acquired or not.
- imwillofficial 4y agoProps for moving fast.
- gpm 4y agoHonestly this makes a ton of sense. The FDIC will be returning most (or all) of the deposits in SVB, so the debt is reasonably safe (at least as far as debt that startups take on ever is). Whoever is funding this is probably not taking on all too much liability, and if they're heavily invested in the startup ecosystem could easily be making enough back from this indirectly to make it worthwhile. For brex this has to be the best marketing ever. Sign up a bunch of customers with real businesses at someone else's expense.
- nostrebored 4y ago97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.
- throwntoday 4y agoI believe the only ones SOL are SIVB shareholders. It's my understanding that SVB has enough to mostly cover their liabilities.
- MrMan 4y agothat's not true -by "mostly" do you mean 70 to 80%? losing 20% of your principal is a huge loss
- throwntoday 4y agoKind of a pedantic comment
- petesergeant 4y ago> losing 20% of your principal is a huge loss losing 20% of your cash-on-hand, where that's above $250k. For most startups, that's going to be a haircut their investors take, where the founders can say "yeah, literally none of this was our fault". For mature, profitable businesses with recurring income, this is going to bite, but they haven't lost 20% of their customers or 20% of the amount of money they expect to get paid next month. For startups, where the money was investment, unlikely their investors are going to blame them for this loss. It might shorten runway by up to 20% for some pre-revenue startups, by less for startups with actual revenue.
- yawnxyz 4y agoI wonder how many people got burned by the previous Brex customer firing event would consider using them again, even with the bridge credits?
- lmm 4y agoYep. If a company with a history of treating their customers well did this it would look positive, but for Brex to do it just looks opportunistic.
- barake 4y agoI'm surprised that Stripe Capital hasn't extended a similar offer for customers of SVB.
- yieldcrv 4y agowhere do you think Stripe Capital banks They threw all their Atlas customers into SVB, according to Atlas customers
- stu2b50 4y agoI think they bank with Celtic Bank. I think this because it says on the Stripe Capital product page on the bottom: https://stripe.com/capital/platforms https://stripe.com/capital/platforms > Loans are issued by Celtic Bank, a Utah-Chartered Industrial Bank Member FDIC. All loans subject to credit approval.
- bdonlan 4y agoThe issuing bank for loans isn't necessarily where the company keeps the majority of their assets.
- stu2b50 4y agoOP's claim was that Stripe Capital's loan underwriter was SVB, hence why they weren't extending loans to SVB affected customers. Stripe itself was, and probably still is, using Wells Fargo for US corporate accounting, per https://qr.ae/pvERsZ https://qr.ae/pvERsZ
- barake 4y agoStripe is still saying they are extending loans via Capital with no change to recent terms they've been offering. Confirmed with our account manager this afternoon, just in case.
- rvz 4y agoExactly. Before they were all hyping about their valuation and now there are so awfully quiet. Perhaps that is why? If a victim of SVB tries to use HN as Stripe customer support and asks if they are exposed, will they respond and admit that their business capital funds in Atlas is lost? > They threw all their Atlas customers into SVB, according to Atlas customers And removed all mentions about SVB in Atlas. Stripe has been very quiet about their own involvement in SVB for their entire business.
- 462436347 4y agoThe VCs collectively orchestrated a bank run that destroyed a bank that serviced them for 40 years, when they should have instead cooperatively organized an LTCM-style consortium bailout for it, and helped them raise capital. The selfishness and short-sightedness of VCs never ceases to impress.
- SirensOfTitan 4y agoI think you massively underestimate how hard it is to coordinate under these kinds of conditions. Plenty of startups are going to be unable to make payroll, which can pierce the corporate veil in CA, it's not a situation where cooperation is the first thought.
- joefigura 4y agoYeah, it's like a stampede in a crowded theater - once the panic sets in everyone's fleeing for the exit and telling everyone else to go too. You could call that coordination, but it's more like once the panic starts it will carry itself out.
- 462436347 4y ago> Yeah, it's like a stampede in a crowded theater It was the same situation with LTCM, with their counterparties (large banks) rushing to liquidate before LTCM became insolvent, which the Fed feared would send shockwaves through the financial system. The banks quickly, collectively agreed to do the right, responsible thing and stopped the fire selling, and injected some emergency capital into LTCM, and then gradually unwound LTCM's postions (and made money in the process).
- majormajor 4y agoIf you were interviewing for a mid-level software engineering job you might suggest "that seems like a single point of failure that could result in a big failure, let's think about how we can add redundancy." Seems like you haven't needed to think about systems design as a VC! "Yeah go to the same place as everyone else I invest in, what could possibly go wrong?!"
- chadlavi 4y agoLot of libertarians suddenly interested in the services a central government can offer them today.
- blitzar 4y agoIts all the fault of the big government and all its bureaucracy and red tape, the government should have done more to stop this from happening to me.
- tikeswarbhoi 4y ago[flagged]
- tikeswarbhoi 4y ago[flagged]
- fairity 4y agoI wonder if Brex ACTUALLY has 3rd party capital lined up to fund these loans yet. It seems just as likely to me that they're getting out early with this message to drive account sign ups, while betting that they can piece together a lending partner on the backend over the next week.
- urbandw311er 4y agoThis reminds me of how scammers swap lists of people who have previously fallen for their tactics, then phone them up and get them all over again…
- TheAlchemist 4y agoStartup ecosystem is safe. VCs are very motivated to put everybody in the same basket here - small depositors, startups, themselves... FDIC is VERY efficient. Most probably, the bank will be open on Monday morning, albeit with another owner, and most small depositors and startups wouldn't even notice if it's not for all these 'breaking news'. The guys that are on the hook here, and their exact job is to manage money, are the VCs. They will most probably loose a relatively small percentage of money (say 10%).