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The 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

by muzz 4y ago

mattbillenstein 4y ago
What 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 ago
  You 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 ago
    As 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 ago
      But then the coverage has mentioned also CMBS. An if you think about those, think about Covid and think about SV remote working…
      - tetrahedr0n 4y ago
        I'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 ago
      Bigger 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 ago
        Yes 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 ago
  Nobody 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 ago
The amount of the potential losses on the uninsured deposits was a very small fraction of $150B.
- vintermann 4y ago
  Was 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 ago
    Yes 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 ago
      Ok, 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 ago
        Huh, are the assets only trading at 5B? I thought it was much closer to 150B?
        jsjohnst 4y ago
        No, 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 ago
Better count "enterprise value" than market cap, as that's the price the company is worth.
- BlueTemplar 4y ago
  What is the difference and where can you see it ?
  - deepsun 4y ago
    Here 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 ago
First, 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 ago
  Their 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 ago
  No, 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 ago
Why would you directly compare those two numbers? It owes all those deposits to other entities.

The 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

by muzz 4y ago

The 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 ago

What 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 ago
You 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 ago
  As 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 ago
    But then the coverage has mentioned also CMBS. An if you think about those, think about Covid and think about SV remote working…
    - tetrahedr0n 4y ago
      I'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 ago
    Bigger 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 ago
      Yes 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 ago
Nobody 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 ago

The amount of the potential losses on the uninsured deposits was a very small fraction of $150B.

vintermann 4y ago
Was 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 ago
  Yes 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 ago
    Ok, 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 ago
      Huh, are the assets only trading at 5B? I thought it was much closer to 150B?
      - jsjohnst 4y ago
        No, 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 ago

Better count "enterprise value" than market cap, as that's the price the company is worth.

BlueTemplar 4y ago
What is the difference and where can you see it ?
- deepsun 4y ago
  Here 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 ago

First, 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 ago
Their 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 ago
No, 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 ago

Why would you directly compare those two numbers? It owes all those deposits to other entities.