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SVB was publicly traded, and it’s not being bailed out. Who do you think owns the now-worthless stock?
by Godel_unicode 4y ago
SVB was publicly traded, and it’s not being bailed out. Who do you think owns the now-worthless stock?
- muzz 4y agoThe market cap of SVB on Friday was $6 B The amount of uninsured deposits was $150 B The value of all the stock is 4% of the amount of uninsured deposits
- mattbillenstein 4y agoWhat is the shortfall once all the assets of the bank are sold though? It's not like anyone is putting $150B into this to make sure those deposits are made whole.
- Phlarp 4y agoYou can't say that right now, I'm not sure anyone can. The government is literally writing a blank check because they don't yet know how much it's going to cost to fix. Everyone seems to be operating under the idea that while their liquidity came into question the underlying assets were and are strong-- if that were true they would have found a private sector solution early in the weekend. Waiting until 6pm on Sunday and a second regional bank collapsing to announce "oops, all bailouts!" seems like an open admission we're in the early stages of another banking crises.
- mjevans 4y agoAs far as coverage has stated so far, the underlying assets ARE solid... Problem is they're just not even a good investment compared to brand new fed bonds / bills of short / long (might have that backwards) due to the now MUCH HIGHER interest rates. They locked in at historically low rates, and had a bank run on their free reserves.
- heisenbit 4y agoBut then the coverage has mentioned also CMBS. An if you think about those, think about Covid and think about SV remote working…
- tetrahedr0n 4y agoI'm sorry, I don't follow the logic here. Do you mind elaborating? I see some correlation between SV remote working and COVID, but don't understand how mortgage backed securities play into this. Are you suggesting higher inflation on the way, lower property values, higher rates, and that it was intentional?
- friendzis 4y ago> the underlying assets were and are strong-- if that were true they would have found a private sector solution early in the weekend One does not follow the other. The triggering problem here were unmatched maturities of assets and liabilities, i.e. liquidity crunch. They have created that liquidity by selling some assets at a loss and tried to recoup that loss from investors. But that was not the problem. The problem was now-imminent bank run, potentially requiring up to ${total-deposits } liquidity injections and unclear future then. Once VCs told their portfolio companies to pull out svb was effectively toast.
- loandbehold 4y agoBigger bank with more cash could have bought them, fixing liquidity issue. This didn't happen, suggesting that there's problems with bank's assets, not just liquidity.
- friendzis 4y agoYes and no. There were 4 stages in this drama. 1. Build up where books became imbalanced 2. Imbalanced maturities draining liquidity 3. Liquidity issues being prominently voiced causing bank run 4. Aftermath. Once the situation evolved from stage 2 to stage 3, the liquidity hole expanded from ${gap-in-maturities} to roughly ${total-deposits} and that is only to contain immediate issue, fixing books would have possibly required additional capital. You are probably right, a bigger bank with liquidity could have saved SVB at stage 2. However, the situation evolved from stage 2 to stage 3 too quick for any meaningful deal to take place while still in stage 2.
- femto113 4y agoNobody has to put in anything other than confidence. Given enough time the bank already has plenty of assets--the whole point of the feds saying "all deposits will be made whole" is to stop the panic withdrawals and thus obviate the need to sell those assets.
- ericd 4y agoThe amount of the potential losses on the uninsured deposits was a very small fraction of $150B.
- vintermann 4y agoWas it? I think I read somewhere that this bank had an unusually large share of depositors over the deposit insurance limit, or in other words a high share of uninsured deposits.
- lordnacho 4y agoYes but that doesn't mean they would lose everything over the insured limit. If I owe you 1M but only have 950k to give you that's a lot better than having only 100k, in which case you'd end up with 250k.
- yawpitch 4y agoOk, but assuming the numbers above are correct, 150B in uninsured deposits - 5B in market cap firesale = 145B that SVB apparently didn’t have the cash on hand to repay. If every depositor walks in first thing Monday morning and withdraws their bad bet in their (apparently single) chosen bank’s management, the customers of all other banks are now on the hook for 145B… which ultimately means everyone on the planet can expect to pay more for their haircuts.
- lordnacho 4y agoHuh, are the assets only trading at 5B? I thought it was much closer to 150B?
- jsjohnst 4y agoNo, GP is just foolishly conflating liabilities and assets and bank deposits and enterprise value among other issues if you read this and their other comments. tl;dr - GP doesn’t have a clue what they are saying.
- deepsun 4y agoBetter count "enterprise value" than market cap, as that's the price the company is worth.
- BlueTemplar 4y agoWhat is the difference and where can you see it ?
- deepsun 4y agoHere is full info: [1] As I see it, market cap/valuation _should_ resemble the price you'd need to pay to buy a company, but it often is not. E.g. a company has marketcap of 10B, but has 30B in liquid cash on hand. It's clear it cannot be bought for 10B. Or the other way around, the company has 30B in liabilities -- the company should pay you 20B to be bought. [1] https://www.investopedia.com/terms/e/enterprisevalue.asp https://www.investopedia.com/terms/e/enterprisevalue.asp
- Godel_unicode 4y agoFirst, since we’re comparing numbers to each other, you should go back before Wednesday to get a real number for pre-run market cap, it’s about 2.5x that. Not that it really matters. Second, just so we’re clear is your point that the holders of that $6B-$15B of useless paper won’t care because it’s less than $150B? At the end of the day, you don’t care what percent of the bag you’re holding, just that you’re holding it.
- RhodesianHunter 4y agoTheir point is that the value of equity is insignificant to the upper class, as compared to the value of the uninsured deposits. IE the equity isn't enough to leverage political capital. The deposits are.
- svnt 4y agoNo, the point is that shareholders of the bank are investors in the bank, and investment comes with the risk of loss. Depositors in a bank are not investors in that bank.
- yawpitch 4y ago> Depositors in a bank are not investors in that bank. No, they’re not. But until just now depositors in any other bank assumed the risk for any deposit in excess of $250K… and if these depositors weren’t morally different than the depositors that would absolutely have lost their wealth in excess of $250K when their chosen bank did a stupid thing, then they’d have paid the piper just like you and I would have. These special depositors are getting special treatment and aren’t suffering what countless non-special depositors have suffered… the rules are changing because of who took the risk, that’s the very definition of moral hazard at work.
- vehementi 4y agoWhy would you directly compare those two numbers? It owes all those deposits to other entities.
- miguelazo 4y agoThe stock isn’t being bailed out, but a certain class of society/account-holder is (again), which seems to be just as bad in terms of perpetuating the moral hazard.
- porknubbins 4y agoWhat moral hazard being created though? Most SVB customers, unless they are finance experts, are not in any position to do due diligence on how their bank invests its loans and are pretty blameless in my opinion. They weren’t capturing any real risk premium by banking with this bank.
- vintermann 4y agoWasn't the selling point of this bank its "libertarianism"? It's a fairly new bank, why did they switch to it if not for doing some research on it?
- notfromhere 4y agoSVB is a 40 year old bank that's been doing business in the valley since the VC era started.
- yawpitch 4y ago> SVB is a 40 year old bank that's been doing business in the valley since the VC era started. So it’s a fairly new bank, by the standard or banks, and the point remains, why did they choose to risk keeping money in excess of the $250K insurance backstop in one bank with no real track record? Until this event the whole idea of the FDIC insurance fund was to ensure that people (not corporations) with relatively small nest eggs wouldn’t lose the whole thing and therefore starve if their bank made bad bets… once your nest egg grew beyond the backstop it was your right (and privilege) to assume the risk of losing it, if you wanted to. Now because VCs and CEOs were essentially asleep at the wheels of companies that, for the part that have gotten this absurdly quick action from the government, consider $250K to be a rounding error, the rules have changed. That’s the special class… the kind of people who somehow think 40 years is a substantial track record for a business that’s big enough to underpin an economy.
- inferiorhuman 4y agoSVB was publicly traded, and it’s not being bailed out. SVB deposits are being paid for with an assessment on FDIC members. Who do you think is going to pay for that? Sincerely, A PG&E ratepayer
- ahepp 4y agoMy understanding is it's not yet known whether a special assessment will need to be levied. The FDIC is making all deposits available before they find out, and if it turns out they cannot sell SVB assets to cover deposits, they will levy a special assessment to make up the difference. Certainly open to being corrected if that's wrong. But as far as I know it's a bit premature to talk about this being a "tax on depositors at other banks". It seems like these actions ensuring stability in the banking system may be beneficial to everyone. If it turned out that all SVB assets were worthless and a HUGE special assessment would need to be levied to cover deposits, I would agree that this could be a moral hazard. But right now I think it just looks like prudent management.
- inferiorhuman 4y agoYou're absolutely right. It's entirely possible for SVB to sell their assets and cover the entirety of the deposits above FDIC limits. Get real. The issue has never been that SVB's assets were completely worthless, it's that they're not going to cover all of the deposits over the FDIC limits. Ten year bonds were a bad idea and nobody wants them given the current interest rate trajectory. If SVB's assets could've been sold for their full cost they would've been. An assessment will happen, it's just a question of how large it will be.
- ahepp 4y agoIt's possible the bank is only a "little bit" insolvent. Is it not possible that the difference can be made up by wiping out shareholders and giving unsecured bondholders a haircut? Per Robert Armstrong of FT: https://www.ft.com/content/9ee5edda-a038-4992-863f-242bd69c8b79 https://www.ft.com/content/9ee5edda-a038-4992-863f-242bd69c8... https://archive.is/OQdR7/43e461dad99a58217efdfde3878ee6b56ccd826e.avif https://archive.is/OQdR7/43e461dad99a58217efdfde3878ee6b56cc... It looks as though SVB may be "only $5 billion" short on its uninsured deposits, with $22 billion in other creditors