4 ms·

Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% bo

Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds

lotsofpulp 4y ago
> The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds I wonder why the leaders at JPM did have not announced this yet, to say they are paying 100% book value. Seems like it would let everyone go back to enjoying their weekend, including Yellen and numerous other prominent people.
- thephyber 4y ago
  Your attitude is flippant and ignores massive risk. Was it meant to be sarcastic? Due diligence. Risk. Opportunity costs. JP Morgan is probably re-evaluating their own assets right now with the assumption that what happened to SVB might happen to them also in a few weeks/months.
ptero 4y ago
I do not think there is reasonable pushback on this. If a private company like JPM wants to do it, great! The issue is with using government money to repay depositors beyond what they would otherwise get from the FDIC floor plus liquidation of SVB assets. I am not saying it should not be done (it probably should to avoid forcefully consolidating all banking at the big three), but that it should be a subject of hard questions and a serious discussion. My 2c.
- thephyber 4y ago
  You’re missing the point. There’s no need to liquidate the bank or do a fire sale. Assuming there was no malfeasance and the assets are as described on the books, the bank just needs liquidity so it doesn’t have to fire sale. Also worth pointing out that every bank likely has the same problem trying to move treasuries from 1-5 years ago right now. The financial big heads should be trying to figure out how to make such a “safe investment” actually safe again.
  - ptero 4y ago
    The source of the problem is liquidity, not the problem assets. But providing this liquidity when needed has costs. That money should not have been spent by government. Here is a simpler example: A person deposits $1000 at a bank at 1% interest. Bank buys 10-year treasuries yielding 3%. Rates rise, treasuries drop and the person suddenly wants his $1000 back (say, because he can get 4% at an MMF with checkwriting privileges). Bank can sell those treasuries at $950 and eat the $50 loss. Or use own money. Or get a loan. But this is not simply "the bank just needs liquidity". It sure does, but no one is willing to lend the bank money at a lower rate, so based on the original price and the current state (rates rose + the customer wants his money back) the bank will be short those $50 that went to the t-bond seller who can now buy the same bond back for $50 less.
runeks 4y ago
I highly doubt that JP Morgan will buy SVB's assets at above-market prices.
- baq 4y ago
  They might if they’re buying more than the assets (i.e. credibility of the whole sector), but the hole is probably too big for even JPM to take it alone. Maybe the top 4 split it between themselves?
- hn_throwaway_99 4y ago
  It's definitely possible. assets = liabilities + equity. Well, SVB equity has already been wiped out to zero, so that's money JP Morgan doesn't need to come up with to make the value of the assets (i.e their securities) equal their liabilities (their deposits). It could theoretically be worth it to JPM to buy SVB to (a) in one fell swoop take over the biggest startup-focused financial institution, and (b) calm systemic risk fears.
JumpCrisscross 4y ago
> not their current market value if sold at fire-sale prices Fire sale means the selling of the assets pushes their value down. This is not that. It’s insolvency; the assets were and are worth less than their book value. > stability of the US banking infrastructure Speaking anecdotally, New York is surprised and the Bay Area scared. This is a local problem. Not a systemic one.
- mlindner 4y ago
  > Fire sale means the selling of the assets pushes their value down. This is not that. It’s insolvency; the assets were and are worth less than their book value. As has been repeated many times, the bank was never and is not insolvent.
  - JumpCrisscross 4y ago
    > the bank was never and is not insolvent Yes, it was, as declared by its regulators. Its balance sheet balanced. But its liabilities were worth more than its assets. If it weren’t insolvent, SVB could have borrowed at the Fed’s discount window. It couldn’t.
  - MrMan 4y ago
    the bank was closed by the FDIC due to insolvency

lotsofpulp 4y ago

> The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds I wonder why the leaders at JPM did have not announced this yet, to say they are paying 100% book value. Seems like it would let everyone go back to enjoying their weekend, including Yellen and numerous other prominent people.

thephyber 4y ago
Your attitude is flippant and ignores massive risk. Was it meant to be sarcastic? Due diligence. Risk. Opportunity costs. JP Morgan is probably re-evaluating their own assets right now with the assumption that what happened to SVB might happen to them also in a few weeks/months.

ptero 4y ago

I do not think there is reasonable pushback on this. If a private company like JPM wants to do it, great! The issue is with using government money to repay depositors beyond what they would otherwise get from the FDIC floor plus liquidation of SVB assets. I am not saying it should not be done (it probably should to avoid forcefully consolidating all banking at the big three), but that it should be a subject of hard questions and a serious discussion. My 2c.

thephyber 4y ago
You’re missing the point. There’s no need to liquidate the bank or do a fire sale. Assuming there was no malfeasance and the assets are as described on the books, the bank just needs liquidity so it doesn’t have to fire sale. Also worth pointing out that every bank likely has the same problem trying to move treasuries from 1-5 years ago right now. The financial big heads should be trying to figure out how to make such a “safe investment” actually safe again.
- ptero 4y ago
  The source of the problem is liquidity, not the problem assets. But providing this liquidity when needed has costs. That money should not have been spent by government. Here is a simpler example: A person deposits $1000 at a bank at 1% interest. Bank buys 10-year treasuries yielding 3%. Rates rise, treasuries drop and the person suddenly wants his $1000 back (say, because he can get 4% at an MMF with checkwriting privileges). Bank can sell those treasuries at $950 and eat the $50 loss. Or use own money. Or get a loan. But this is not simply "the bank just needs liquidity". It sure does, but no one is willing to lend the bank money at a lower rate, so based on the original price and the current state (rates rose + the customer wants his money back) the bank will be short those $50 that went to the t-bond seller who can now buy the same bond back for $50 less.

runeks 4y ago

I highly doubt that JP Morgan will buy SVB's assets at above-market prices.

baq 4y ago
They might if they’re buying more than the assets (i.e. credibility of the whole sector), but the hole is probably too big for even JPM to take it alone. Maybe the top 4 split it between themselves?
hn_throwaway_99 4y ago
It's definitely possible. assets = liabilities + equity. Well, SVB equity has already been wiped out to zero, so that's money JP Morgan doesn't need to come up with to make the value of the assets (i.e their securities) equal their liabilities (their deposits). It could theoretically be worth it to JPM to buy SVB to (a) in one fell swoop take over the biggest startup-focused financial institution, and (b) calm systemic risk fears.

JumpCrisscross 4y ago

> not their current market value if sold at fire-sale prices Fire sale means the selling of the assets pushes their value down. This is not that. It’s insolvency; the assets were and are worth less than their book value. > stability of the US banking infrastructure Speaking anecdotally, New York is surprised and the Bay Area scared. This is a local problem. Not a systemic one.

mlindner 4y ago
> Fire sale means the selling of the assets pushes their value down. This is not that. It’s insolvency; the assets were and are worth less than their book value. As has been repeated many times, the bank was never and is not insolvent.
- JumpCrisscross 4y ago
  > the bank was never and is not insolvent Yes, it was, as declared by its regulators. Its balance sheet balanced. But its liabilities were worth more than its assets. If it weren’t insolvent, SVB could have borrowed at the Fed’s discount window. It couldn’t.
- MrMan 4y ago
  the bank was closed by the FDIC due to insolvency