6 ms·

Silicon Valley Bank paid out bonuses hours before seizure

201 points by VagueMag 4y ago

throwaway81523 4y ago
Did the bonus checks clear?
- phone8675309 4y ago
  You'd have to be a really stupid exec to approve drawing bonus checks from your own bank.
  - s1artibartfast 4y ago
    Why is that? I assume all banks pay their employees bonuses from their own funds. Why would a bank hold a payroll account in a second Bank?
    - anticensor 4y ago
      For bragging rights?
paulddraper 4y ago
> were previously scheduled to be disbursed on March 10. That date ultimately coincided with the bank's takeover by the Federal Deposit Insurance Corporation. Okay. > [FDIC offered] The employees would be compensated 1.5x times their normal salaries, while hourly workers would receive 2x their normal wages for overtime. Wow. Failure really does pay :) EDIT: I understand this is absolutely the best move by the FDIC. At the same time, failure really does pay. Just the reality.
- monocasa 4y ago
  That's pretty common when the government has to take over a business. You basically give the employees an incentive to not start shredding and instead work with and enable the .gov takeover as smoothly as possible. Practically there'll be a lot of extra work and you want the people who know their systems best assisting.
- mbreese 4y ago
  FDIC just took over a failing bank and wants to spin it out quickly. To do that, you need to know where the bodies are buried. With that in mind, it’s better to keep the existing people in place for as long as possible. Remember, this is a short-term gig and there is no guarantee that there will be a job for them after this has all played out. As an incentive to keep the existing people around, they need a carrot to keep them from getting a new (more stable) job.
- s1artibartfast 4y ago
  The FDIC understands supply and demand. This is a crisis situation and they are trying to track down 200 billion dollars. For this weekend and perhaps the coming weeks, these employees have some of the most valuable information on the planet. The vast majority are probably good employees that had nothing to do with the specific decisions that landed the bank in this situation
- compiler-guy 4y ago
  The fdic absolutely needs the everyday employees who know the business to show up and be productive. These will be the employees who know the passwords and account info and the day to day work of the bank. They aren’t the executives who made the bad decisions. In some ways, they are the victims of the executives’ bad decisions just like the depositors.
- smsm42 4y ago
  The workers they need are probably not those that led to the failure - at least not most of them - but those that are needed to keep the lights on and the wheels turning. FDIC has a lot of work on their hands going through the books, untangling the messes, deciding who gets what and when - and having some people that know which button to press when and how to fix the system if it crashes is vital. And these people know their employment is at the end - so for them the best strategy is to look for the new jobs ASAP. That's why FDIC is offering them 2x - so that they will take what is knowingly a very short-term job and spend their time helping FDIC instead of spending it looking for the new job. It's not a reward, it's the only way it can work.
simonebrunozzi 4y ago
I have no problem with compensating employees for work done in 2022. The problem I might have, and I guess many others, is the incompetence of SVB executives and the board of directors, in relation to how they (didn't) handle this particular risk.
- phone8675309 4y ago
  Some of the work they did in 2022 and before likely contributed to them being unable to handle this risk, so why should the be rewarded for running this bank into the ground before depositors and other creditors are made whole?
  - lukeschlather 4y ago
    This doesn't say "executive bonuses." I would not be surprised if SVB employs customer service teller-type-people making $60k/year with an annual $5k bonus, and this headline would be consistent with such people getting their scheduled bonuses paid on time. The headline says nothing about what the compensation level or responsibility of the people getting paid bonuses was.
- npunt 4y ago
  It seems like a bad way to run a bank if these kinds of large risk decisions (buying ~$80b in 10y bonds at ~1.5%) are solely driven by a few execs and the BoD, while everyone else in the bank is just a drone. If employee comp (yearly and even historic bonuses) was tied to the bank's catastrophic risk levels, I bet you'd see banks restructure their operations to curtail these kinds of catastrophic risk factors. Smart people wouldn't join banks where they didn't have a say in that. Instead, we get short-termism where the longest timeframe people care about is 'this years bonus'. Banking is too important to be that stupid.
  - dasil003 4y ago
    I think you're misinterpreting what the GP is saying. It's an organization, and those at the top bear responsibility regardless of how decisions are made internally (and there's no way those executives are making decisions without a huge lift from the rank and file). Sure it's hard to stay on top of everything—executives are human and will make mistakes–but that's why they get paid the big bucks! At the end of the day anything short of full accountability from those at the top is a huge moral hazard and recipe for disaster.
danpalmer 4y ago
Bonuses are often calculated months in advance, and employees are also normally told about them weeks or more before they are paid (they're often even in contracts). Despite the guy on Twitter calling the SVB issues in January, and arguably long term mismanagement that led to the downfall, the actual issues happened rapidly, over a matter of days. These just didn't happen on the same time scale, and bonuses can't be undone in a matter of days with employees expecting them and even contracts demanding them. There's a lot of reasonable takes on this whole terrible situation, but implying or suggesting that the bonus payouts were part of it or that employees are to blame for taking them is a terrible take.
- amacneil 4y ago
  Sure they could. To put it in perspective, thousands of companies are unable to pay their employees and vendors this week due to the SVB collapse. It does not seem unreasonable that SVB employee bonuses for "great job done in 2022" should have been delayed given the clear evidence on Thursday that the bank was imploding.
  - danpalmer 4y ago
    The perspective is not lost on me, I just think it's completely unrealistic on multiple fronts: it's a tiny fraction of the money, it's executed on a very different timeline and potentially not possible to stop (certainly not easy, HR may not even talk to treasury), and it may be against their contracts. In jobs like this bonuses are also not just "great job" money, they're a predictable part of compensation that people depend on.
    - ssss11 4y ago
      Sorry but it’s as simple as a directive to the person who clicks “Pay Now” to not do that yet. A predictable part of compensation is being paid your regular wage on time and for many clients of SVB this is probably not possible this week coming. They should have halted the bonuses.
      - 4y ago
ryukoposting 4y ago
To people who don't work in finance, maybe it seems reasonable to take away bonuses from employees at a failing bank. It sounds crazy to me. My finance friends are in PE, not banking, but they do soul-crushing work for grueling hours specifically because of that end-of-year bonus.
- coldtea 4y ago
  Yeah, unlike those people working on third party companies depending on the bank for their salaries... I mean, who works harder and needs the money more, a finance executive waiting for their bonus, or a single mother of two working two jobs, one of which happened to be in a company depending on this bank for its salary payments? Obvioysly the former!
  - ryukoposting 4y ago
    What if the single mom worked at the investment bank?
    - c-hendricks 4y ago
      Then they would still have a better chance at getting a bonus? Really is a bunch of oblivious neolibs in here.
      - z3c0 4y ago
        Or maybe just people who understand that banks aren't simply giant piles of money and have such things as "operational costs" that exist outside their holdings for their clients?
      - ryukoposting 4y ago
        I just think the "single mother with 3 kids" is being used as a strawman in this case.
    - coldtea 4y ago
      Then she'd have her bonus already! My point exactly. And she'd be much better off than the single mothers not working there, but depending on the bank for ther salaries, even without a bonus!
deleted 4y ago
[deleted]
sharkjacobs 4y ago
[flagged]
deleted 4y ago
[deleted]
sql-spy 4y ago
[flagged]
- renewiltord 4y ago
  Why FRB?
  - deleted 4y ago
    [deleted]
PragmaticPulp 4y ago
From the headline I thought maybe they had accelerated the bonus payout schedule to squeeze money out of the company before the collapse, but the article says it was scheduled long ago: > What to know: The bonuses were for work done during 2022, and were previously scheduled to be disbursed on March 10. That date ultimately coincided with the bank's takeover by the Federal Deposit Insurance Corporation. Furthermore, bonuses that were scheduled later in the month weren't paid out: > Bonuses for employees in some other countries were scheduled for later in the month, so those haven't yet been paid. So while the headline sounds bad and is likely going to generate outrage, this really just reads like normal payroll processing was happening on schedule. Note that payroll would have been coming out of a completely different bucket (e.g. not from customer reserves) and would have been submitted for processing prior to March 10th in order to be disbursed on March 10th. Also note that bonuses are an integral part of compensation, so withholding already-earned compensation from regular employees (the majority of which had nothing to do with the collapse issues) is an unreasonably punitive idea. So basically, the timing was coincidence unless someone can come up with some weird evidence that bankers delayed the collapse just long enough to get their bonuses, which seems far fetched. The collapse was triggered when they ran out of liquidity due to customer actions, which they couldn't have prevented. There's a similar outrage-bait story circulating about executives selling stock prior to the collapse, but that was also pre-scheduled sales that were planned long in advance.
- samstave 4y ago
  [flagged]
- pugworthy 4y ago
  I appreciate this fact-oriented comment.
- eep_social 4y ago
  My bonus also paid Friday. It’s almost like this is a typical time of the year for bonuses to go out. No expense spared on the headline here /s
rahimnathwani 4y ago
How was SVB able to pay bonuses on Friday, when the previous day it was unable to execute its customers' wire instructions?
- chii 4y ago
  you don't pay employees from customer deposits.
  - rahimnathwani 4y ago
    From SVB's perspective, customer deposits are liabilities. So your statement is true about SVB paying its employees. But it's equally true about SVB doing wire transfer for its customers. When SVB 'sends' money to an account at another bank (whether that account belongs to a startup or to an SVB employee), SVB tells the other bank the amount and the account number. The other bank debits SVB's account at that bank for that amount. The funds don't 'come from' deposits (which are liabilities) but from balances SVB holds at other banks.
smsm42 4y ago
Q1 is a common time to pay out last year's bonuses. And TBH, I don't think most of the bank workers share any blame for SVB collapse, and they did work the whole 2022 so I don't think it would be fair for them not to get the bonuses they earned. And given that they'll find themselves out of a job very soon, I don't think it's a bad thing - at least they have some cushion while they're looking for the next job. I mean, if we're talking about C* suite, they probably didn't really deserve any bonus, but if we're looking at line workers in the branches, it's not their fault somebody made mistake with investments.

201 points by VagueMag 4y ago

throwaway81523 4y ago

Did the bonus checks clear?

phone8675309 4y ago
You'd have to be a really stupid exec to approve drawing bonus checks from your own bank.
- s1artibartfast 4y ago
  Why is that? I assume all banks pay their employees bonuses from their own funds. Why would a bank hold a payroll account in a second Bank?
  - anticensor 4y ago
    For bragging rights?

paulddraper 4y ago

> were previously scheduled to be disbursed on March 10. That date ultimately coincided with the bank's takeover by the Federal Deposit Insurance Corporation. Okay. > [FDIC offered] The employees would be compensated 1.5x times their normal salaries, while hourly workers would receive 2x their normal wages for overtime. Wow. Failure really does pay :) EDIT: I understand this is absolutely the best move by the FDIC. At the same time, failure really does pay. Just the reality.

monocasa 4y ago
That's pretty common when the government has to take over a business. You basically give the employees an incentive to not start shredding and instead work with and enable the .gov takeover as smoothly as possible. Practically there'll be a lot of extra work and you want the people who know their systems best assisting.
mbreese 4y ago
FDIC just took over a failing bank and wants to spin it out quickly. To do that, you need to know where the bodies are buried. With that in mind, it’s better to keep the existing people in place for as long as possible. Remember, this is a short-term gig and there is no guarantee that there will be a job for them after this has all played out. As an incentive to keep the existing people around, they need a carrot to keep them from getting a new (more stable) job.
s1artibartfast 4y ago
The FDIC understands supply and demand. This is a crisis situation and they are trying to track down 200 billion dollars. For this weekend and perhaps the coming weeks, these employees have some of the most valuable information on the planet. The vast majority are probably good employees that had nothing to do with the specific decisions that landed the bank in this situation
compiler-guy 4y ago
The fdic absolutely needs the everyday employees who know the business to show up and be productive. These will be the employees who know the passwords and account info and the day to day work of the bank. They aren’t the executives who made the bad decisions. In some ways, they are the victims of the executives’ bad decisions just like the depositors.
smsm42 4y ago
The workers they need are probably not those that led to the failure - at least not most of them - but those that are needed to keep the lights on and the wheels turning. FDIC has a lot of work on their hands going through the books, untangling the messes, deciding who gets what and when - and having some people that know which button to press when and how to fix the system if it crashes is vital. And these people know their employment is at the end - so for them the best strategy is to look for the new jobs ASAP. That's why FDIC is offering them 2x - so that they will take what is knowingly a very short-term job and spend their time helping FDIC instead of spending it looking for the new job. It's not a reward, it's the only way it can work.

simonebrunozzi 4y ago

I have no problem with compensating employees for work done in 2022. The problem I might have, and I guess many others, is the incompetence of SVB executives and the board of directors, in relation to how they (didn't) handle this particular risk.

phone8675309 4y ago
Some of the work they did in 2022 and before likely contributed to them being unable to handle this risk, so why should the be rewarded for running this bank into the ground before depositors and other creditors are made whole?
- lukeschlather 4y ago
  This doesn't say "executive bonuses." I would not be surprised if SVB employs customer service teller-type-people making $60k/year with an annual $5k bonus, and this headline would be consistent with such people getting their scheduled bonuses paid on time. The headline says nothing about what the compensation level or responsibility of the people getting paid bonuses was.
npunt 4y ago
It seems like a bad way to run a bank if these kinds of large risk decisions (buying ~$80b in 10y bonds at ~1.5%) are solely driven by a few execs and the BoD, while everyone else in the bank is just a drone. If employee comp (yearly and even historic bonuses) was tied to the bank's catastrophic risk levels, I bet you'd see banks restructure their operations to curtail these kinds of catastrophic risk factors. Smart people wouldn't join banks where they didn't have a say in that. Instead, we get short-termism where the longest timeframe people care about is 'this years bonus'. Banking is too important to be that stupid.
- dasil003 4y ago
  I think you're misinterpreting what the GP is saying. It's an organization, and those at the top bear responsibility regardless of how decisions are made internally (and there's no way those executives are making decisions without a huge lift from the rank and file). Sure it's hard to stay on top of everything—executives are human and will make mistakes–but that's why they get paid the big bucks! At the end of the day anything short of full accountability from those at the top is a huge moral hazard and recipe for disaster.

danpalmer 4y ago

Bonuses are often calculated months in advance, and employees are also normally told about them weeks or more before they are paid (they're often even in contracts). Despite the guy on Twitter calling the SVB issues in January, and arguably long term mismanagement that led to the downfall, the actual issues happened rapidly, over a matter of days. These just didn't happen on the same time scale, and bonuses can't be undone in a matter of days with employees expecting them and even contracts demanding them. There's a lot of reasonable takes on this whole terrible situation, but implying or suggesting that the bonus payouts were part of it or that employees are to blame for taking them is a terrible take.

amacneil 4y ago
Sure they could. To put it in perspective, thousands of companies are unable to pay their employees and vendors this week due to the SVB collapse. It does not seem unreasonable that SVB employee bonuses for "great job done in 2022" should have been delayed given the clear evidence on Thursday that the bank was imploding.
- danpalmer 4y ago
  The perspective is not lost on me, I just think it's completely unrealistic on multiple fronts: it's a tiny fraction of the money, it's executed on a very different timeline and potentially not possible to stop (certainly not easy, HR may not even talk to treasury), and it may be against their contracts. In jobs like this bonuses are also not just "great job" money, they're a predictable part of compensation that people depend on.
  - ssss11 4y ago
    Sorry but it’s as simple as a directive to the person who clicks “Pay Now” to not do that yet. A predictable part of compensation is being paid your regular wage on time and for many clients of SVB this is probably not possible this week coming. They should have halted the bonuses.
    - 4y ago

ryukoposting 4y ago

To people who don't work in finance, maybe it seems reasonable to take away bonuses from employees at a failing bank. It sounds crazy to me. My finance friends are in PE, not banking, but they do soul-crushing work for grueling hours specifically because of that end-of-year bonus.

coldtea 4y ago
Yeah, unlike those people working on third party companies depending on the bank for their salaries... I mean, who works harder and needs the money more, a finance executive waiting for their bonus, or a single mother of two working two jobs, one of which happened to be in a company depending on this bank for its salary payments? Obvioysly the former!
- ryukoposting 4y ago
  What if the single mom worked at the investment bank?
  - c-hendricks 4y ago
    Then they would still have a better chance at getting a bonus? Really is a bunch of oblivious neolibs in here.
    - z3c0 4y ago
      Or maybe just people who understand that banks aren't simply giant piles of money and have such things as "operational costs" that exist outside their holdings for their clients?
    - ryukoposting 4y ago
      I just think the "single mother with 3 kids" is being used as a strawman in this case.
  - coldtea 4y ago
    Then she'd have her bonus already! My point exactly. And she'd be much better off than the single mothers not working there, but depending on the bank for ther salaries, even without a bonus!

deleted 4y ago

[deleted]

sharkjacobs 4y ago

[flagged]

deleted 4y ago

[deleted]

sql-spy 4y ago

[flagged]

renewiltord 4y ago
Why FRB?
- deleted 4y ago
  [deleted]

PragmaticPulp 4y ago

From the headline I thought maybe they had accelerated the bonus payout schedule to squeeze money out of the company before the collapse, but the article says it was scheduled long ago: > What to know: The bonuses were for work done during 2022, and were previously scheduled to be disbursed on March 10. That date ultimately coincided with the bank's takeover by the Federal Deposit Insurance Corporation. Furthermore, bonuses that were scheduled later in the month weren't paid out: > Bonuses for employees in some other countries were scheduled for later in the month, so those haven't yet been paid. So while the headline sounds bad and is likely going to generate outrage, this really just reads like normal payroll processing was happening on schedule. Note that payroll would have been coming out of a completely different bucket (e.g. not from customer reserves) and would have been submitted for processing prior to March 10th in order to be disbursed on March 10th. Also note that bonuses are an integral part of compensation, so withholding already-earned compensation from regular employees (the majority of which had nothing to do with the collapse issues) is an unreasonably punitive idea. So basically, the timing was coincidence unless someone can come up with some weird evidence that bankers delayed the collapse just long enough to get their bonuses, which seems far fetched. The collapse was triggered when they ran out of liquidity due to customer actions, which they couldn't have prevented. There's a similar outrage-bait story circulating about executives selling stock prior to the collapse, but that was also pre-scheduled sales that were planned long in advance.

samstave 4y ago
[flagged]
pugworthy 4y ago
I appreciate this fact-oriented comment.
eep_social 4y ago
My bonus also paid Friday. It’s almost like this is a typical time of the year for bonuses to go out. No expense spared on the headline here /s

rahimnathwani 4y ago

How was SVB able to pay bonuses on Friday, when the previous day it was unable to execute its customers' wire instructions?

chii 4y ago
you don't pay employees from customer deposits.
- rahimnathwani 4y ago
  From SVB's perspective, customer deposits are liabilities. So your statement is true about SVB paying its employees. But it's equally true about SVB doing wire transfer for its customers. When SVB 'sends' money to an account at another bank (whether that account belongs to a startup or to an SVB employee), SVB tells the other bank the amount and the account number. The other bank debits SVB's account at that bank for that amount. The funds don't 'come from' deposits (which are liabilities) but from balances SVB holds at other banks.

smsm42 4y ago

Q1 is a common time to pay out last year's bonuses. And TBH, I don't think most of the bank workers share any blame for SVB collapse, and they did work the whole 2022 so I don't think it would be fair for them not to get the bonuses they earned. And given that they'll find themselves out of a job very soon, I don't think it's a bad thing - at least they have some cushion while they're looking for the next job. I mean, if we're talking about C* suite, they probably didn't really deserve any bonus, but if we're looking at line workers in the branches, it's not their fault somebody made mistake with investments.