FDIC auction for SVB said to be underway, final bids due Sunday

https://www.bloomberg.com/news/articles/2023-03-12/fdic-auction-for-svb-said-to-be-underway-final-bids-due-sunday

by VagueMag • 3 years ago

222 230 3 years ago

bloomberg.com

latchkey2• 3 years ago

I really wish they'd televise this. I'd love to watch the bidding process.

htag• 3 years ago

It's probably closer to making an offer on a house than a live auction event.

mixdup• 3 years ago

yeah, this would not be excited in the least. watching a dozen emails come in would be quite boring

thechao• 3 years ago

Except the previous owner gets a Snickers bar instead of, say, the cash equivalent of the house.

rtp4me• 3 years ago

No kidding. It would be fascinating to see who joins the bidding process and what kind of leverage/collateral they use.

RC_ITR• 3 years ago

The PiP of men doing excel.

The angry call from a boss about an unclear footnote.

The suspense!

paxys8• 3 years ago

It's probably a lot less exciting than you imagine. Wait for the movie in a few years.

moomoo11• 3 years ago

Who would you cast for what roles?

asah• 3 years ago

months

fbdab1037• 3 years ago

Are you imagining something like the Microsoft Excel Stream[0]?

[0] https://www.youtube.com/watch?v=xubbVvKbUfY

JacobDotVI• 3 years ago

Not an FDIC auction, but if you’re interested in what this sort of bidding looks like the book Barbarians at the Gate details the LBO auction of RJR Nabisco. That auction was a lot of bankers squired away in conference rooms on separate floors of an office building while the auctioneers walked bids between the various groups.

formercoder• 3 years ago

Sadly it doesn’t work this way anymore. You just send a heavily lawyered pdf bid letter by email.

notmindthegap2• 3 years ago

let’s start a DAO to buy it

jedberg2• 3 years ago

Why in the world would you want to own the bank? Whoever is buying it is doing so to get the customer list. The assets aren't really worthwhile given that they will all need to be sold to cover the depositors, given that if they opened as DAOBank on Monday everyone would pull their money out.

The only case I see of not having a run on the remaining balances is if someone like Chase buys them.

notmindthegap2• 3 years ago

it was a joke, reference to the DAO that tried and failed to buy the constitution at auction

furyofantares• 3 years ago

Whoever is buying it is doing so to get the customer list.

And to prevent contagion, I'd guess? Or do you not see it that way?

fbdab1037• 3 years ago

Whoever is buying it is doing so to get the customer list.

Not a bank or in the financial sector, but this makes no sense to me. It is likely fairly easy to get the list of VCs who used SVB. If nothing else, startup businesses which SVB catered to are significantly less appealing than they were one to two years ago. What fraction of those clients required low interest rates to keep the business viable?

dylan604• 3 years ago

it's the banking version of acquihire.

Bank CEO: "We want to get more tech biz customers, but we don't want to start from scratch with high risk startups."

FDIC: "We have this bank with a lot of established companies"

throw_pm23• 3 years ago

Couldn't someone with a lot of cash buy them, pay back the depositors without having to sell assets, then hold the assets until maturity, and then make a profit (presumably having bought them at a discount)? As far as I understand, the nominal value of assets still exceeds the obligations?

chrisacky• 3 years ago

Are a book of assets that easily accessed to be able to even create a portfolio of interest?

voisin• 3 years ago

Absolutely. They would have a digital record of everything available in real time. If they didn’t then they were never a real bank.

fbdab1037• 3 years ago

The comparison would be FTX where they handed the auditor a pile of Excel spreadsheets and some vague, "I thought they were in last week's email" kind of accounting.

Real banks have real controls and want to know where every fractional cent (blast, my Superman 3 scheme is foiled in the crib) is at any moment.

Edit: minor English goof

loeg4• 3 years ago

Yes? Of course they know what the assets are.

bostik• 3 years ago

Yes.

Every big bank[x] has to submit daily risk reports. If those reports are late by more than (IIRC) 48h, they feel the consequences. Then there are end-of-week, end-of-month, and end-of-quarter reports too.

The daily reports may take a couple of hours to run. Spread across a compute grid of few thousand cores. I work for a company that provides a quant analysis and computation platform for financial institutions. We tend to skip our weekly client-facing code promotion at the end of quarter, to make it absolutely sure that there are no unexpected changes that could mess up their gargantuan report runs.

[x]: Let's omit the nuance for once, ok?

linusg789• 3 years ago

https://ghostarchive.org/archive/jlYao

neonate• 3 years ago

https://archive.ph/XYuBe

sigmar• 3 years ago

For banks that are bidding, how do they know how many assets SVB had? Are they working off of data from past fillings?

WJW3• 3 years ago

SVB itself knows which assets it has, and therefore the FDIC knows. They then send out invitations to bid to banks with the list of assets as an attachment.

EDIT: It's not only the assets that are being bid on, the curator could just sell those themselves. But SVB has (even now) some amount of intangible value in terms of relations with customers, built up expertise in serving startups, etc etc. A bank looking to diversify into providing banking services for startups might be willing to bid more for such expertise and customer lists than a bank which is happy with the customer base it has. So I'd expect it would be mostly the intangibles which drive the potential differences in bids, with the market price of the assets merely serving as floor.

seanhunter8• 3 years ago

You get an excel sheet with all the assets and their current mark. Then you typically have until late sunday to put the bid in so they can resolve the bank before market opens on Monday.

Source: was part of a team doing this valuation analysis over a very fun weekend in 2008 for one of the famous bank failures

MonkeyMalarky• 3 years ago

Are bidders expected to forget or "un-see" such knowledge afterwards? Or is the information not that detailed / anonymized in some way?

_boffin_• 3 years ago

Would love to hear more if you’re willing to Take the time and write it out.

bob_theslob646• 3 years ago

The way to determine a mark is extremely different than in 08' , be mindful of that. Determining that mark is an incredibly difficult task.

Symmetry• 3 years ago

Like the Excel Spreadsheet that FTX was shopping around but accurate and with no "“Hidden, poorly internally labeled ‘fiat@’ account" entry. SVB may have screwed up badly but I don't think anyone is accusing them of bad record keeping or any other impropriety.

MuffinFlavored• 3 years ago

Then you typically have until late sunday to put the bid in so they can resolve the bank before market opens on Monday.

nobody is going to pay 100% for them, right?

so it's basically who will pay the most between 50-95% for them?

why wouldn't somebody want assets 5% off (full 95% bid?)

seydor3• 3 years ago

Q why didn't SVB limit withdrawals and transfers after this started. Could they?

bradleyjg• 3 years ago

No. A bank that refuses a demand on a demand deposit account is by definition in default.

seydor3• 3 years ago

Unless it's capital controls

tills132• 3 years ago

I'm sure a bank limiting withdraws would have made matters even worse.

mikepurvis• 3 years ago

To be fair, though, that's kind of what's ended up happening for everyone anyway— at least the customers with >$250k on deposit.

fbdab1037• 3 years ago

This is not a Bitcoin Exchange where the founders have the freedom to do whatever they want.

seydor3• 3 years ago

It crashes like a crypto exchange though

latchkey2• 3 years ago

Just a friendly reminder that COIN is a public company.

dragontamer6• 3 years ago

I don't think you're allowed to limit withdrawals on savings accounts or checking accounts. (Beyond the 6x monthly limit on savings)

Money Market accounts are allowed to have limits (and haircuts) applied. Etc. etc. As a bank, they'd have different accounts with different rules on each kind of account. But Money Markets aren't allowed to be mixed with the long-term treasuries that SVB were holding.

So it really depends on the mix of accounts, various regulations and such.

fbdab1037• 3 years ago

The Money Market one probably comes as a surprise to many people (it did to me). I believe the financial industry lobbied so that the day-to-day Money Market fluctuations could be hidden from the user so that clients thought they were more stable than reality.

TMWNN• 3 years ago

(Beyond the 6x monthly limit on savings)

Hasn't been a thing for three years.

notfromhere• 3 years ago

Federal law

seanhunter8• 3 years ago

My understanding is this isn't a "run on the bank" situation, they were too successful growing their deposit book and couldn't grow their loan assets fast enough to keep pace. So they bought a lot of MBS so they at least were earning some yield with which to pay interest on their deposit liabilities but took heavy losses when rates moved against them so were inadequately capitalised. They tried to raise additional capital and a couple of key miscommunications in that process really spooked the market and they suddenly collapsed.

ec1096853• 3 years ago

SVB was offering above market interest rates though:

According JPM: “At the end of 2022, SIVB only offered 0.60% more on deposits than its peers as compensation for the risks illustrated below; in 2021 this premium was 0.04%.”

ru552• 3 years ago

$40b was withdrawn Friday morning. If that’s not a run, I don’t know what is.

Animats• 3 years ago

They could have limited withdrawals before it started, but not after. Banks used to offer savings accounts, where the bank could impose a delay on withdrawals. That delay was once 30-60 days, then 7 days, and now it's mostly gone. This allowed small banks time to sell off some assets in the event of a sudden increase in withdrawals. In exchange for that, savings accounts paid higher interest. This was part of the dull and boring banking system designed in the 1930s.

See "Savings and Loan Crisis" for how that ended.[1]

[1] https://en.wikipedia.org/wiki/Savings_and_loan_crisis

colechristensen3• 3 years ago

They could not change the terms on accounts, no.

rvnx9• 3 years ago

Instead of paying with cash, couldn't they pay using shares of SVB ? SVB becomes Silicon Valley Bank, a bank for startups, owned by startups.

zacharyvoase• 3 years ago

Because shares in an entity that owes more than it owns are worth zero.

rvnx9• 3 years ago

If they find a way to agree with the creditor to exchange the cash against shares, they won't owe anything. These shares are backed by long-maturity treasuries, MBS and future business of the bank.

Then the new owners of this bank, can decide whether to liquidate long-maturity treasuries at a loss, or raise new capital, or just wait it out.

dheera• 3 years ago

It's worth what the market deems it's worth, if the SEC doesn't keep dipping their hands in the market and halting trading, Reddit would have a chance to bid up the stock to some nonzero value.

It's not like the valuations of any other tech stock are based on fundamentals either.

colechristensen3• 3 years ago

Depends on what the market is valuing it today.

My prediction is that the result of the auction will be a merger whereby SVB stockholders will be compensated in stock of the acquiring bank valued at a few dollars per share down from ~$300 a month ago. Depositors made whole, stockholders lose 90-99%, creditors get paid. The purchase likely sweetened by a sizable cheap Fed loan or guarantee, or maybe the Fed buying some of the distressed assets at nominal value.

thuridas• 3 years ago

A company has different values for different customers depending on what they are going to do with it.

The software and customers would have some value. If they can provide digital capabilities to a traditional bank it will certainly be a plus against the negative in financial products.

paxys8• 3 years ago

"My startup's entire cash position is gone and I can't make payroll next week, but hey at least I get these worthless shares of a failed company!"

Although these are all startup founders and VCs, so maybe the strategy will actually work.

rvnx9• 3 years ago

These shares are not worthless at all if the bank has a future. SVB's main issue is that you have to wait for the treasuries to get back to the par value once they mature.

If SVB distributes shares of itself in prorata of the liabilities that they have toward their customers, then customers would essentially have majority of voting rights, and they can decide on what to do.

They can vote a resolution to get physical delivery of the underlying bonds, and individually decide to wait it out and/or sell portions of bonds on the market progressively (when they need cash).

sigstoat• 3 years ago

turning depositors, probably the most senior possible form of debt, into shareholders, the least senior form of debt, is a garbage deal that nobody in their right mind would take.

ec1096853• 3 years ago

That’s what they are doing: “ 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.”

rvnx9• 3 years ago

Interesting finding, thank you.

tills132• 3 years ago

I read that the FDIC is brutally efficient and, if this is true and SVB opens Monday under a different owner as if nothing happened, this statement will certainly be an understatement.

mertd• 3 years ago

It would be quite funny if JPM ends up being the owner and the startups who rushed to transfer their accounts presumably to JPM just login on Monday and click the cancel button.

fbdab1037• 3 years ago

I imagine many businesses are going to diversify banks in the near future so they can always make next month's rent.

cm21872• 3 years ago

Presumably they don't transfer the deposits, only the assets. Otherwise JPM would bid a negative amount.

more_corn• 3 years ago

FDIC promised that the bank (under a new name) will open for business Monday morning. I’d bet $250,000 on it.

blackoil• 3 years ago

Given it is fairly common for FDIC. What is the history in such cases? Do depositors always get all money back or they have to take some haircut?

Denvercoder95• 3 years ago

They publish all historic payouts for closed banks on their website: https://closedbanks.fdic.gov/dividends/

From a quick look at a random sample, it seems most end up with about ~70% paid out, but there is quite some variance.

paxys8• 3 years ago

Worth noting though that this list covers everything from cases of incompetence and mismanagement to outright fraud. It's relatively easy to recover money if it is tied up in T-bills. Not so if the bank owner decided to go buy a yacht with customer funds.

kasey_junk3• 3 years ago

That’s the list for all creditors, not depositors. Almost all deposits get transferred to another financial institution. It will be listed on the failed bank report.

sql-spy• 3 years ago

In most cases depositors recover 90% or higher.

Insured deposits are paid on first day the bank opens. More than 50% of uninsured deposits are paid within a week. Another 20% or so gets paid within a year or sooner in quarterly installments. Remaining amount gets paid in yearly installments and in all cases was paid within 3 years.

Haircut is guaranteed in this political climate since there is no appetite for a bailout. At least not for SVB. The later ones could be bailed out but SVB is a goner.

Denvercoder95• 3 years ago

More than 50% of uninsured deposits are paid within a week. Another 20% or so gets paid within a year or sooner in quarterly installments. Remaining amount gets paid in yearly installments and in all cases was paid within 3 years.

The data does not support these statements. E.g. for a random bank I selected on the FDIC site [1], "American National Bank", uninsured depositors got paid 77.8% in three installments: the first 57% two weeks after bank closure, 7.4% after three years and the last 13.3% after five-and-a-half years.

[1] https://closedbanks.fdic.gov/dividends/

searealist• 3 years ago

Haircut is guaranteed in this political climate since there is no appetite for a bailout. At least not for SVB. The later ones could be bailed out but SVB is a goner.

SVB stock and bond holders will lose everything but it is far from guaranteed that depositors will take a haircut.

dkjaudyeqooe2• 3 years ago

Haircut is guaranteed

Not if someone buys it. Unless a haircut is part of the bid, which seems unlikely. No point having 97% of your new customers pissed off at you.

dh2022• 3 years ago

But where will the money that pays un-insured deposits come from? SVB's assets are worth less than its liabilities at this point....

lamontcg2• 3 years ago

There's really no good history for this kind of a case.

Washington Mutual was a bigger failure, but there was another lender who had already attempted to take it over, and had done due diligence, and Washington Mutual had a large amount of unsecured debt which allowed those lenders to take the hit and left depositors completely unscathed.

IndyMac was a smaller bank but it was over $10B in assets and the FDIC had to setup a Bridge Bank because the attempt to auction it off failed, so the FDIC had to impose a loss of 14% of total deposits on the depositors.

Since 2007, the FDIC has served as receiver for over 525 banks. Only 9 of these failed banks had assets over $10 billion. Thus, the overwhelming majority, over 98 percent, had assets under $10 billion.

The FDIC routinely liquidates banks under $10B. What we have here is not routine, and is Washington Mutual-sized. The smoothness of Washington Mutual being taken over though was probably not something you can expect to rely on.

https://www.fdic.gov/news/speeches/2019/spoct1619.html

debacle• 3 years ago

Somewhat completely off topic, but with interest rates "skyrocketing" compared to recent history, would it be feasible to "buy back" one's fixed rate debt? Or sensible?

rvnx9• 3 years ago

You can do it with mortgage, go from fixed-rate to floating rate and vice-versa, and you pay the cost of hedging for the duration of the mortgage.

mghfreud• 3 years ago

Please ELI5.

gopalv• 3 years ago

So the reason SVB had trouble with their assets is that they had to reprice the mortgage based securities they had to sell off.

If I wanted to buy back my house's mortgage from the bank, they'd ask me to pay the full principal.

But if JP Morgan buys it off SVB, they'd discount the mortgage and pay either 80 cents to the dollar or 50 cents (!), while they get to collect the whole principal & interest back from me as I repay.

What if I could buy it off SVB at fire sale prices, instead of some other financial firm?

This is probably most relevant when you think of medical debt, for example John Oliver's medical debt give away where he bought 14.9 millon dollars in debt for 60k & just forgave it through a non-profit (because debt forgiveness is a taxable event, which is just a tax loophole otherwise).

If you owe a hospital a million dollars and they are willing to sell it for 100k, why should you keep owing a million after its been sold for that price?

lamontcg2• 3 years ago

You mean you want to pay off 90% of the remaining principle today in order to "buy" the paper at the same haircut that another bank would be able to buy it for? Nope.

cowsandmilk• 3 years ago

For companies with publicly traded debt, it is definitely possible. Whether it is advisable is a different question.

tsycho• 3 years ago

Interesting thought, treating your debt like a bond.

If you no longer need the debt, i.e. you have the cash to pay it back, you could _theoretically_ loan out that cash to someone else at the higher current market interest rate. Loaning money involves credit risk of course, so practically this would mean buying something like higher interest paying Treasuries or AAA bonds. Effectively, the spread between your borrowed fixed rate debt and the bonds you bought are the _profit_ you make, the NetPresentValue of which is roughly what you would get if you could "buy back" the debt.

piperswe2• 3 years ago

That's sorta what I'm doing with my car loan - instead of paying extra principal, I'm putting the money into an FDIC-insured account that pays about twice the interest that I'm paying on my car loan.

dragontamer6• 3 years ago

When you have a 10% mortgage and interest rates drop to 2%, you refinance. You borrow a new loan at 2%, buy out your old 10% loan (so you never have to deal with 10% interest rate payments again).

If you have a 2% loan, and interest rates skyrocket to 10%, you absolutely do not sell your 2% loan to reup to 10%. That's just stupid. You keep the 2% loan and even try to slow down payments (if you were double-paying or otherwise cutting down principal before, you stop doing that).

kgwgk5• 3 years ago

I understand the question to be whether you can liquidate a 2% 20-year loan paying fifty cents on the dollar or whatever the fair amount is. (I guess the answer is no for the usual US mortgages but it could be yes for some kind of loans.)

jesperhh• 3 years ago

In Denmark this is possible and common. Danish mortgages can always be bought back at 100% value (if the rate drops), and for example a 2% mortgage from a few years ago can be bought back around 85% value.

daydream• 3 years ago

This is really interesting. Nothing like it exists in the US as far as I know.

I am ignorant of current and previous Danish mortgage interest rates. Assuming a 2% mortgage from a few years back, and current interest rates at say 6%, I would expect to buy back at less than 85% value.

simonebrunozzi• 3 years ago

Does anyone know if this includes SVB UK as well? Or, given it's run by FDIC, it only relates to the (much bigger) US business?

700000thMistake• 3 years ago

Just read the UK SVB was just taken over too by UK gov.

shagymoe• 3 years ago

I've read that SVB UK is a totally separate entity and not affected. I have no evidence of that though.

WJW3• 3 years ago

SVB UK was just placed into an insolvency procedure by the Bank of England, so I guess they were not as separate as they thought.

(https://www.bankofengland.co.uk/news/2023/march/boe-statemen...)

fredoralive• 3 years ago

It seems that SVB UK is being handled separately by the UK authorities, with a separate attempt to find a buyer for that business.

forbiddenlake• 3 years ago

the BoE said: “SVB UK has a limited presence in the UK and no critical functions supporting the financial system. In the interim, the firm will stop making payments or accepting deposits.” SVB UK confirmed it would be put into insolvency from this Sunday evening (tomorrow).

https://techcrunch.com/2023/03/11/svb-contagion-uk-arm-shuts...

wand3r• 3 years ago

wonder if stripe is capable of bidding. Would be strategic for them if they could make this work i bet

moffkalast3• 3 years ago

Why would Stripe need to buy a bank, they already have a license to print money.

azinman23• 3 years ago

How so?

edgoode• 3 years ago

Could Microsoft, Apple, Google, or Amazon place a bid

Strategically, a consumer or cloud co w/ a banking arm might make a great strategic position. And the new relationships with the customer base of SVB could accelerate the acquirer

Not to mention all the bundling..

drdec2• 3 years ago

I doubt it. Part of the point of the exercise is to calm the rest of the banking market. Letting an inexperienced (re banking) company take over will increase the uncertainty.

chiph2• 3 years ago

Apple had $51bn in cash at the end of 2022. They could easily raise whatever additional funds needed to submit a winning bid. But I don't see them wanting to own a bank. They already have financing options for people to buy their hardware, and Apple Cash is working fine with whatever level of regulation it has.

xyst• 3 years ago

I think they need to be a member of the FDIC to even make a bid. But even if they did not, I doubt these companies would want to be regulated under banking laws or setup the infrastructure to do so. There's a reason why these companies establish "partnerships" with well known banks (ie, Apple x Goldman Sachs). They are simply not setup to deal with the regulation. It's better to farm it out to a well established bank and let them take the hits from violating banking laws at all levels (ie, state vs federal vs international).

h2odragon• 3 years ago

SBF presumably wasn't allowed to bid.

FDIC auction for SVB said to be underway, final bids due Sunday

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