4 ms·
I think you are missing some context around this story. Banking can be a confusing topic. What that employee is referring to, and it is a great employee quote,
by riskneutral 4y ago
I think you are missing some context around this story. Banking can be a confusing topic.
What that employee is referring to, and it is a great employee quote, is the fact that SVB's unexpected announcement that it was selling HTM securities at a loss and publicly raising equity is the singular event that really triggered the whole crisis. The CEO's poorly calibrated communication and lack of action in the midst of a run on his bank had sealed the bank's fate by Thursday afternoon.
The point this employee is making is that instead of this kind of "Boy Scout" transparency about its efforts to shore up its balance sheet (which only served to cause panic), the CEO should have quickly and privately closed a deal to raise capital only announced the deal after it was done. I don't know if doing a deal with a Middle Eastern Sovereign Wealth Fund would have helped avoid an accidental panic. But they could have very easily sold SVB to a larger bank before the CEO's own-goal of causing a run on his bank by announcing forced selling of bonds at a loss and a public capital raise. Once the bank run had begun, it was impossible for a buyer to step in.
I believe that it must have been greed and overconfidence at the core of their problems. They didn't want to hedge their IR exposures, didn't want the expense of raising capital quietly, didn't want the expense of diversifying their funding sources away from volatile depositors, etc.
- fifilura 4y agoRepresentatives from Alecta, the swedish pension fund that was big owner said the same. That SVB had presented a plan that was agreed upon with the owners but instead they sold their assets with a loss and went out publicly to seek investment without having an agreement with anyone. They declared this a "big mistake"
- deleted 4y ago[deleted]
- antibasilisk 4y ago[flagged]
- riskneutral 4y agoI didn't say you wouldn't get it. Maybe you don't want to get it? Let's say you own a restaurant and you find a mouse in your kitchen. You could: 1. Call an exterminator overnight to make sure you don't have a larger problem and contain the issue before the shop opens the next morning. Improve your kitchen hygiene standards going forward but don't draw unnecessary attention to your renewed efforts. 2. Call the local news station over to your restaurant to get live action footage of you catching the mouse. Go on camera and give a speech about how you've already scheduled for an exterminator to come in a few days, and the last thing the customers need to do is panic. Which option is the correct business decision, from the owner's perspective?
- antibasilisk 4y agoThis is a total disanalogy because banking concerns depositors who are actively trusting you to secure their wealth, while a restaurant owner supplies a temporary service that ceases after maybe an hour or two. A better analogy would be lastpass getting hacked, and then rightfully disclosing that instead of just keeping it under wraps.
- riskneutral 4y agoAs restaurant's customers actively trust the restaurant to not jeopardize their health. The banking equivalent of Lastpass getting hacked and not disclosing it would be if a bank was insolvent and instead of rightfully disclosing that it instead just kept it under wraps. That would be accounting fraud and executives would be charged with crimes like they were in the Enron scandal. SVB experienced a sudden liquidity problem, not a solvency problem. Solvency and liquidity are two separate things.
- antibasilisk 4y agoBut it was insolvent, all of them are.
- 4y ago