SVB Collapse and EF Women’s WT Team

[paulh]

Tech Start-up CEO's trying to get cash to make payroll next week.

[carpediemracing]

FDIC took over:
https://www.fdic.gov/news/press-rele...3/pr23016.html

I read somewhere that about 80% of the deposits were uninsured. That's not verified, but that percentage aligns with the idea that most of the depositors were institutional (large deposits) and not smaller deposit individuals. FDIC limit is $250k.

[witcombusa]

This is not isolated. More will fall/fail.
It's only the beginning.

[verticaldoug]

As a matter of law, insured deposits are paid first. uninsured deposits are paid next. These are followed by secured creditors, unsecured creditos and finally stockholders. The sponsorship deal fees will make EF a unsecured creditor to the bank.

https://www.fdic.gov/consumers/banki.../priority.html

SVB is unique in not that it has mostly institutional clients, but the fact it lacks diversity in clients and essentially everything is always focusing on tech. Deposits came from tech, and the cash burn of customers deposits (withdrawals) has been a point of discussion within the analyst community in 2022. (the cash burn was not due to corporate clients moving their cash, it was from using the cash to fund existing business operations. VC Startups have not been able to really raise funds to replace current cash burn rates) Lending was to tech, investing was in tech. The largest amount of loans is in RMBS , but you have to ask what portion of these loans are to bank clients who also work in tech.

This will be an excellent study in lack of diversification and what happens when correlation goes to one.

https://s201.q4cdn.com/589201576/fil...AL3-030823.pdf

https://s201.q4cdn.com/589201576/fil...ion_vFINAL.pdf

Unless the FDIC makes some really bad decisions on liquidating assets, I'd think uninsured deposits get back between 90-95% of their money. Creditors on the other hand, may be in a really bad way here.

Shareholders should be a zero. Junior sub should be a zero. Senior unsec ? probably also a zero.

On a side note, senior unsecured debt is trading around 36. This means bondholders expect to get some recovery. In order for bondholders to get recovery, the uninsured depositors need to be paid in full first. Therefore, I could be overly pessimistic and maybe depositors get 100% of funds repaid.

[kylecycler]

Originally Posted by Elefantino

No word from Linda Jackson yet anywhere. She has had SVB on board since 2015.

As the team's title sponsor, yes, but I did a bit of digging last night and found out that SVB has actually part-sponsored the team since 2007, the year after TIBCO became its title sponsor (I only got interested in pro cycling a few years ago so until last year I always just knew the team as TIBCO-SVB). Which probably makes it all the more of a blow to the team, sadly.

Linda Jackson was interviewed early last year - she explained how it was a big step up to the Women's World Tour from them being a UCI Continental Team for all those years - in 2021 they had one DS, one mechanic and one soigneur (they still competed in most WWT races, though, by invitation, and often showed remarkably well); they've now tripled their staff.

https://www.youtube.com/watch?v=AjkfJPBKiig

Of course, it was bringing EF Education on board that enabled them to make the jump, so hopefully they might help to cover for the loss of SVB or help to bring someone else in who can - it's like 'their' team now and it's in their interests to keep it going.

The interview's seriously worth watching (it's quite short), she's wonderful to listen to. She's achieved an awful lot on a relative shoestring so I'm sure she'll find a way through this.

Reading the comments, you Americans seem to know an awful lot more about money than us Scots. We don't spend it, though (Scots are notoriously tight-fisted, in case you didn't know), so we don't need to know so much about how to make it and we don't have so much to lose when we do.

[rwsaunders]

4th worst preforming S&P 500 stock last year (right behind Tesla) and the CEO cashed in $3.5M of options two weeks before the closure, that today would be worth $0. Should make a good mini-series.

[peanutgallery]

This is why most of my liquid cash is in a state employees credit union

The crash of SVB isn't all that surprising given the base and what not. If you put your cash in in a fluid place in todays day and age there could be a price, but It sucks for the team, that is part of the deal when you don't clock in. The PR budget is awesome on the front end of the deal, sucks on the other

Time to find a new sponsor. If you've ever raced a bike for $$ and never been caught in the cold you are extremely lucky. It happens

[9tubes]

Originally Posted by verticaldoug

SVB is unique in not that it has mostly institutional clients, but the fact it lacks diversity in clients and essentially everything is always focusing on tech. Deposits came from tech, and the cash burn of customers deposits (withdrawals) has been a point of discussion within the analyst community in 2022. (the cash burn was not due to corporate clients moving their cash, it was from using the cash to fund existing business operations. VC Startups have not been able to really raise funds to replace current cash burn rates) Lending was to tech, investing was in tech. The largest amount of loans is in RMBS , but you have to ask what portion of these loans are to bank clients who also work in tech.

This will be an excellent study in lack of diversification and what happens when correlation goes to one.

Excellent points. Just two additions. It's the bank's job to adjust their investment portfolio due to the depositors' needs. If you're a bank in rural Iowa you know that your depositors will withdraw money during the raising of crops and then flood the bank with deposits after harvest and sale. The other point is that in every bank run the correlation goes to one.

I wonder though. They say SVB's problem is that it had bonds that could only be sold for a discount (i.e. loss) due to rising interest rates. If SVB were able to hold those bonds to maturity it would get 100% of their value. The Fed could buy the portfolio of bonds from SVB for par (issue price) plus accrued interest between issue date and Monday. SVB gets all the money Monday from the Fed. The Fed would wait for bond maturity and the bond issuer would pay the Fed the issue price plus the accrued bond interest.

The multi-billion dollar question is whether that is the only problem at SVB.

[veloduffer]

SVB's problem with RMBS is that the market value of these securities are sensitive to interest rates- not only fixed rate but prepayment speeds slow. So they had a large mark-to-market loss that they had to realize to meet withdrawals. Since many depositors were venture capital firms, the weak IPO market was pressuring their working capital and they were burning cash.

In finance, concentrations tend to kill...

[Louis]

Originally Posted by rwsaunders

4th worst preforming S&P 500 stock last year (right behind Tesla) and the CEO cashed in $3.5M of options two weeks before the closure, that today would be worth $0. Should make a good mini-series.

Ain't capitalism great?

[verticaldoug]

Originally Posted by 9tubes

I wonder though. They say SVB's problem is that it had bonds that could only be sold for a discount (i.e. loss) due to rising interest rates. If SVB were able to hold those bonds to maturity it would get 100% of their value. The Fed could buy the portfolio of bonds from SVB for par (issue price) plus accrued interest between issue date and Monday. SVB gets all the money Monday from the Fed. The Fed would wait for bond maturity and the bond issuer would pay the Fed the issue price plus the accrued bond interest.

Let's say the assets real mark to market are 95% of face. FED buys at face.
Now the bank has assets backed by 100% of cash. Some customers will withdraw, but not all. In fact, I'd say most would not withdrawal because the bank can now turnaround and invest the cash in short term treasuries paying more than 4%. The bank can actually raise interest paid on deposits to attract new deposits because you have a clean brand new bank with existing infrastructure. You also have a clean bank with the safest balance sheet around and a clear competitive advantage. You just rewarded their past risky behavior.

The tax payer ends up paying for the bailout (time value of money, and they overpaid by 5% for the original assets)

The past few years the Gov has set a bad standard of always bailing out the failed capitalist experiment. Remember there is a certain amount of this is the Silicon Valley Bank and Silicon Valley Players thinks they are the smartest guys in the room and always want to do business in their closed universe.

If you don't let the business fail, you just create more moral hazard as the big guys will always think they get bailed out. That's a big reason why Bill Ackman's call to bailout SVB is so repugnant. If the US Finance system is so fragile it cannot let one bank fail, then I'd say we have bigger problems than the bank failing and to continue the bailout giveaways without meaningful financial reforms will just accelerate the wealth gap in the US.

(currently, distressed funds are bidding between .7-.8 for deposits. Pretty confident deposits worth more than 90)

[oldpotatoe]

Originally Posted by rwsaunders

4th worst preforming S&P 500 stock last year (right behind Tesla) and the CEO cashed in $3.5M of options two weeks before the closure, that today would be worth $0. Should make a good mini-series.

Ain't capitalism great?

For this guy it is..for John and Jane Q. Public, not so much...'trickle down economics' has been shown to be bollocks how many times? Starting Jan 20th,1981....