SVB episode is a big blow to IT sector

[pichhipullayya]

13 minutes ago, hyperbole said:

No those funds are not gone, it held those deposits in bonds and they mature after 10 years, ippudu some big bank will take over those bonds and create liquidity for depositors to withdraw. My experience with 3 banks atleast by Monday they will open as some other bank and over the weekend some big bank will compete the acquisition 

What happened here is that SVB didn't properly manage their risk when they had influx of deposit in 2020-2021 time period. They couldn't loan out the money fast enough so instead of halting to take deposit or hold it in cash they invested in 10 year Residential and Commercial MBS, totaling 68% of their assets. SVB thought the low interest party we had post GFC would continue forever. Banks can plan for this risk by aiming to match the duration of their liabilities, which includes deposits, to their assets. For example, if a bank is getting funding via a one-year certificate of deposit, it can buy a Treasury maturing in one year to match. But if a bank’s deposits can move at any moment, it has to weigh that risk when investing. Banks also diversify with assets that are floating rate, like many kinds of corporate loans or credit card loans. SVB just got greedy and took all money and thought investing in fixed income(T-bills, Residential & Commercial MBS) would be enough for risk and collect the fat dividend.

Funds are not gone but if they are not liquid enough, businesses will struggle. I feel there is much more which is not being revealed to avoid panic in market and public.

[hyperbole]

2 minutes ago, Ryzen_renoir said:

There is something going on that the public isn't aware of yet 

The issues you mentioned are not enough to collapse the whole thing so fast

FDIC comes in to play when there is no liquidity to run the bank and/or when liabilities exceed assets.
 

SVB  had a $16 market cap before melting down, to cover the withdrawals they sold bonds they own for $2 billion loss and if they have to cover for more withdrawals they will be bankrupt if they sell bonds at loss and may even fall short of their assets vs liabilities, to better stop that from happening FDIC entered the picture, basically doing so will stop them stop selling their bonds at a loss and instead bring in someone who can keep the bonds to maturity but offer liquidity required to run the bank

[veerigadu]

13 minutes ago, hyperbole said:

FDIC comes in to play when there is no liquidity to run the bank and/or when liabilities exceed assets.
 

SVB  had a $16 market cap before melting down, to cover the withdrawals they sold bonds they own for $2 billion loss and if they have to cover for more withdrawals they will be bankrupt if they sell bonds at loss and may even fall short of their assets vs liabilities, to better stop that from happening FDIC entered the picture, basically doing so will stop them stop selling their bonds at a loss and instead bring in someone who can keep the bonds to maturity but offer liquidity required to run the bank

The question is who would take over? Most of their mortgage portfolio decisions happened when interest rates were very low.

Why would any bank take over the task of providing liquidity to a bank which has less less profits ( due to low interests on those mortgage securities) in the first place. 

[hyperbole]

22 minutes ago, ramudu said:

only less than 5% of the accounts has less than $2,50,000 , FDIC insure won't cover above that amount ..... it is tricky now 

It’s not that black and white, $250 is for individual account and joint accounts have $500 k protection, here we are speaking about corporate accounts.

secondly, the $250k is immediate and guaranteed which you may withdraw but if you have more FDIC will issues coupons for any additional deposits. In the subsequent thing FDIC will sell assests and then you encash those coupons, that is the process, usually it won’t come to that as all the banks heavily regulated they have to proove assets vs liabilities regularly and hence they will be able to sell it to someone big and even pump money if required to save the depositors.

wamu, Wachovia, countrywide are examples when they failed FDIC sold to big 3 banks and business was run as usual with a different name

[veerigadu]

20 minutes ago, pichhipullayya said:

Funds are not gone but if they are not liquid enough, businesses will struggle. I feel there is much more which is not being revealed to avoid panic in market and public.

I think real estate really took a beating....Even if SVB collects back all its mortgage portfolio money today, it might still be under water. I dont know. There is definitely more to this story., 

[ramudu]

7 minutes ago, hyperbole said:

It’s not that black and white, $250 is for individual account and joint accounts have $500 k protection, here we are speaking about corporate accounts.

secondly, the $250k is immediate and guaranteed which you may withdraw but if you have more FDIC will issues coupons for any additional deposits. In the subsequent thing FDIC will sell assests and then you encash those coupons, that is the process, usually it won’t come to that as they sell it someone big and even pump money if required to save the depositors.

wamu, Wachovia, countrywide are examples when they failed FDIC sold to big 3 banks and business was run as usual with a different name

FDIC is not going to sell and settle to customer, other banks will acquire all assets and liabilities , they buy dollars for cents and there is no guarantee that corporate customers get their full amount over the FDIC insured amount , rumors are JPMC may acquire SVB 

[veerigadu]

Just now, ramudu said:

FDIC is not going to sell and settle to customer, other banks will acquire all assets and liabilities , they buy dollars for cents and there is no guarantee that corporate customers get their full amount over the FDIC insured amount , rumors are JPMC may acquire SVB 

I think this is the best case scenario. 

[ramudu]

@hyperbole for corporate customers also 250K limit , this will blow big 

 

[hyperbole]

6 minutes ago, veerigadu said:

I think real estate really took a beating....Even if SVB collects back all its mortgage portfolio money today, it might still be under water. I dont know. There is definitely more to this story., 

 

in general Mortgage bonds tend to be safer than corporate bonds and, therefore, typically have a lower rate of return.

2008 was a bad recession because the mortgage bonds got fcked up, even worse they got repackaged and sold multiple times to investors, example: I bought a 100k house, some bank would give me a loan and sell it to a investor as a security, then another bank would approach me to refinance it as $200k loan  with gained equity, then they package and sell it again. This went in cycle until hell broken lose 

[hyperbole]

8 minutes ago, ramudu said:

FDIC is not going to sell and settle to customer, other banks will acquire all assets and liabilities , they buy dollars for cents and there is no guarantee that corporate customers get their full amount over the FDIC insured amount , rumors are JPMC may acquire SVB 

That’s what I just said.

this is one bank that failed imagine a situation like 2008, the worst of situations they can sell assests to multiple entities but that is unlikely in this case as someone big is going to assume all the assests and liable 

[ramudu]

11 minutes ago, hyperbole said:

That’s what I just said

not that easy right just like FDIC come rescue , this is going to have domino effect until things settle , most of the VCs are now  no access to their funds , bay area startup accounts are frozen , even rumors that Airbnb cash stored in SVB bank , only $250K access now through FDIC and  rest after settlment .....  airbnb might get 300millions for billion? same with other corporate accounts ...... we will know soon 

 

SVB has $150 billion  deposits antaaa  , only 3% are less than 250K ..... wow these numbers are big 

[veerigadu]

17 minutes ago, hyperbole said:

 

in general Mortgage bonds tend to be safer than corporate bonds and, therefore, typically have a lower rate of return.

2008 was a bad recession because the mortgage bonds got fcked up, even worse they got repackaged and sold multiple times to investors, example: I bought a 100k house, some bank would give me a loan and sell it to a investor as a security, then another bank would approach me to refinance it as $200k loan  with gained equity, then they package and sell it again. This went in cycle until hell broken lose 

I agree. But I'm looking at it from a acquisition and merger perspective. 

From a commercial standpoint, I dont see any benefit in acquiring this bank. It has almost zero prospects for profit generation.

Their bonds might be safer on risk paradigm but they are not going to yield profits especially with the possibility of high interest rates in near future. It seems like most of these stupid decisions by SVB were made in 2020 and 2021. 

Unless the new entity can really get away with 50 cent for each dollar on paper. They wont see any benefit in providing liquidity now. 

[hyperbole]

35 minutes ago, veerigadu said:

I agree. But I'm looking at it from a acquisition and merger perspective. 

From a commercial standpoint, I dont see any benefit in acquiring this bank. It has almost zero prospects for profit generation.

Their bonds might be safer on risk paradigm but they are not going to yield profits especially with the possibility of high interest rates in near future. It seems like most of these stupid decisions by SVB were made in 2020 and 2021. 

Unless the new entity can really get away with 50 cent for each dollar on paper. They wont see any benefit in providing liquidity now. 

It requires a lot of capital to acquire start a new campaign and acquire a customer, how do you think Chase grew so big, there was no chase in California before 2008 and all of a sudden it acquired all the accounts of WaMu.

Account holders bring liquidity, SVB has $150 billion deposits and think for a moment 1-2% interest on $150 billion deposits and that is going to return a massive money for them over the years, also banks make money by cross selling their products, corporation loans, payroll, insurance and a whole lot of businesses.

chase will have to assume the risk but it will almost be given out free with all their assets and liabilities 

 

[hyperbole]

59 minutes ago, ramudu said:

not that easy right just like FDIC come rescue , this is going to have domino effect until things settle , most of the VCs are now  no access to their funds , bay area startup accounts are frozen , even rumors that Airbnb cash stored in SVB bank , only $250K access now through FDIC and  rest after settlment .....  airbnb might get 300millions for billion? same with other corporate accounts ...... we will know soon 

 

SVB has $150 billion  deposits antaaa  , only 3% are less than 250K ..... wow these numbers are big 

this is something put out by FDIC today.

“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”

This is procedural but my experience having seen much worse, over the weekend they will find a buyer and on Monday the bank will open with a new name, if not, then we have even bigger problem as $160 billion is a not a small anount and that is money spent by government to bailout all the banks in 2008

[ramudu]

10 minutes ago, hyperbole said:

 

This is procedural but my experience having seen much worse, over the weekend they will find a buyer and on Monday the bank will open with a new name, if not, then we have even bigger problem as $160 billion is a not a small anount and that is money spent by government to bailout all the banks in 2008

gorre sachindi ...

 

more than 50K VC accounts are in limbo with this , if they don't get access to their money soon , tech startups and tech jobs inka  

 

anna @Manishican , jobs medha , economy meedha rendu positive words cheppi pooo