Saturday 11 March 2023

Laying The Simplicity of SVB's Bank Failure

 SVB was started in the early 1980s in the Silicon Valley area of California.  The key to it's growth throughout the 1990s....start-up businesses coming in and dumping their business into the 'pool'....along with management and technicians in the mix.

Around eight years ago, it controlled one-quarter of all banking in the valley area.  It eventually moved out into Hong Kong, India, China, Israel, and UK.  

Back in late 2008.....SVB got a $235 million investment deal from the US Treasury Department under the Troubled Asset Relief Program....to tide them over the banking industry collapse.

So they had a lot of loan deals going, and I would imagine the Covid era presented problems for some people to pay back the money.

Along the way....they attracted alot of VIPs.  Some rumors today suggest that Oprah has a substantial amount of money tied up in their business.  Another suggests that Prince Harry had some of his book profit money with them.

The interest rate changes in the past year....more weight/burden upon them.

So what is said....around 3-to-4 percent of the accounts will be covered by the FDIC $250,000 insurance.  Remainder?  Not covered.  The little guys from the local area?  They probably will get their accounts covered.  The big clients...with a million to 500 million?  I'd say they've got problems.

Will someone come up to buy the bank?  They need a review and 'settlement' on the $250,000 business.  

I would imagine court action to consume the next three years and no purchase of the bank is likely until spring/summer of 2024.  Value?  It's hard to imagine them or the audit people getting more than 10-percent of the value.  Maybe I'm wrong, but this is a pretty harsh position to be in.

So here's the question.....are there other identical banks that went the route of SVB, and are they just a month or two away from failure as well?

Oh, and to note how much debt they are in the hole presently?  15-billion dollars.  On the plus side....they hold around 90-billion dollars in fed bonds.  That money is rock-hard safe.  

The one odd factor?  A bunch of Silicon Valley start-ups had their money there, and there is a fair amount of risk you can assign to the bank and the money still existing (maybe partially.....maybe fully). 

3 comments:

Anonymous said...

The Federal Reserve pinned interest rates at unprecedented lows. And, in a radical shakeup of its framework, it promised to keep them there until it saw sustained inflation well above 2% — an outcome that no official forecast.
SVB took in tens of billions of dollars from its venture capital clients and then, confident that rates would stay steady, plowed that cash into longer-term bonds.
In doing so, it created — and walked straight into — a trap.

Anonymous said...

I think Sam Bankman-Fried and FTX failures got this ball rolling downhill.

Schnitzel_Republic said...

There's three things laying there in public view:

1. You get the impression that bank-knowledge people really don't exist. These idiots who brought in the big customers...were making promises that the bank should not have made.

2. There seems to be a lot of political donations made by the company and its executives....to Biden and Senator Schumer. It smells a lot like the FTX 'world'.

3. If you wrote up a list of the top forty banks in the US...just how many have the same interest rate issue brewing? The discussion is not being conducted. I would imagine a minimum of ten more major banks are lined up....maybe a month away....maybe six months away....to collapse in the same fashion. You can't go around saving them...other than using the $250,000 insurance deal for the regular consumer.

Finally...the question is...if you had vast wealth tied up in other banks...wouldn't you go and start asking questions...moving money to safety, and creating a ripple effect...thus making matters worse?