We don't know who bought SVB yet it will likely be announced tomorrow (EST/PST timezone) probably. The US gov announcing the full confidence of deposits wasn't merely an altruistic move, they likely had a buyer at the time of announcement and maybe a secondary commitment to support the mortgage debt which caused the whole thing.
You may be right, but the news coverage I've seen implies that the full backstop of all deposits regardless of size was announced because there is no buyer for SVB. Basically, there just wasn't enough time for buyers to feel comfortable with pulling the trigger.
Ah that's very possible. It makes sense their main objective was calming the market given other banks failing, committing ahead of time to finding a long term holder to the $90B mortgage security (in addition to the large set of stable depositor assets they held) was probably a much safer bet than the other options, regardless if a buyer fully committed to either asset group.
I’d guess (and it’s purely a guess) that it was their loan portfolio that made assessing their balance sheet hard to price. MBS’ and long term bonds can be priced using very standard techniques. Loans secured with startup equity warrants on the other hand are tough.
The announcement from Treasury, the Fed, and the FDIC was that depositors would be made whole and that there would be an assessment on banks to cover it. As such, I'd assume that there was no buyer.
> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer... Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
While they say "no losses will be borne by the taxpayer", making banks pay who will then pass along those costs to their customers seems like a roundabout way of taxpayers paying - or at least a substantial portion of taxpayers who are banking customers. Maybe banks won't be able to pass along the costs through increased fees or lower rates and will have to eat the costs.
HSBC just restructured, I've been an HSBC US customer for 10 years including business banking, they're not going anywhere, just only serving high net worth and business now. I agree it would have been nice if they bought SVB, they'v been great for me with my startups, they're really good at business banking.
I want to build a business someday, and have always been interested on what to watch for when looking for a business bank as a founder.
Do you mind sharing why do you think HSBC is a good business bank and what are the typical qualities a business needs to have to be great for founders?
For me: Strong account manager who takes the time to understand the business, doesn't send you forms to fill in that don't have basic info already filled in for you, mostly don't bother you, when there are issues does most of the work to resolve them and only rely on you to do the last leg, don't offer products or services unless they're relevant, uses online tools like docusign or their internal equivalent, has good online banking, mostly doesn't bother you.
Over the long term SVB may have a positive net value, but unlocking that is likely to require short term cash injections to meet current liabilities (not to mention restaffing/integrating the bank). Those costs are the real price that HSBC is paying for SVB.
They bought £5bn of assets and liabilities and bunch of admin work integrating it all. I highly doubt anyone is bothering to break out the champagne for this one - it is a rounding error at best.
This isn't 4d giga brain chess stuff, its adults walking into the room. A meaningless tiny bank with assets and liabilities broadly matched has gone under - the regulator has stepped in, phoned around the market and somebody had to take it. £1 is the best they could do - and I expect that it is going to, directly at least, be a loss of money for HSBC all the same.
SVB parent group made 1.8bn last year - they are insolvent now.
From here HSBC will spend ~10mil on just the purchase legals. Then they will spend 100s mil when inevitably the equity / bond holders of SVB parent co sue them looking to adjust up the price, and their opening ask will be £1bn+.
All 3,000 business accounts (if there were that many) were up for grabs anyway so they could have had many using a photocopier and handing out flyers at silicon roundabout without any of the hassle.
HSBC looked at their own existing liabilities - looked at how many customers of theirs were paid from SVB (and paid their HSBC mortgages with the proceeds) and did the BoE a favour, and there will be a quid pro quo for that quid they paid at some point.
"And yeah, 80 million pounds of profit last year. I'd buy that for a dollar"
In business, last years profits are often irrelevant. This is a good example. It's a constant treadmill of trying to stay profitable - which isn't as easy as it sounds.
More so when businesses of this size are usually built on owing large sums of money.
Well, it might be more accurate to say they are taking on risk.
They are getting customers (the deposits owed to those customers is debt), but they will also be getting illiquid assets that should more or less cover the value of those deposits.
They will need to use their own liquid cash in the short term to cover any withdrawals. But in the long term they get to keep some of the customers and they should eventually profit when those illiquid assets mature.
Buying for £1 is a common thing in the UK for companies in distress. In reality it’s worthless so should be £0 due to the mountain of worth and risk they need to wade through to realise the value, but UK contract law requires some kind of consideration (I think that’s the right term, my contract law for engineers module was a while ago now) for both sides otherwise it’s not a valid contract.
The assets might be worth something, but the brand is shot - kept alone, it would have suffered the same sort of bank run that killed the parent entity. HSBC is buying their books and hoping that SVB UK customers will be assuaged into not asking for the money back, now that HSBC is looking after it. Eventually I expect all SVB UK accounts to be moved to HSBC equivalents.
Banks, at the end of the day, are just that: brands built on the belief that they will survive long enough to not lose your money. Once that belief goes, once the brand is over, a bank run is automatic and the bank dies.
It's was totally safe until Monday morning when all the depositors would leave.
HSBC has a huge Sterling reserve buffer that can easily accommodate that exodus. (Essentially HSBC UK becomes the depositor of last resort in SVB UK).
Remember that the issue with SVB was that it was taking duration risk when it hadn't the deposits to match that duration. The HSBC parent company can easily provide that duration.
Cashflow issues kill profitable operations. They kill banks in double quick time.
They were only saying that on Friday, by Saturday it was "following discussions with the regulators, we intend to enter liquidation on Sunday evening".