HSBC To Buy UK Arm of Silicon Valley Bank For $1.2 (bbc.com) 165
HSBC, in a stock exchange filing: HSBC Holdings plc announces that its UK ring-fenced subsidiary, HSBC UK Bank plc, is acquiring Silicon Valley Bank UK Limited (SVB UK) for 1 pound ($1.2). As at 10 March 2023, SVB UK had loans of around $6.6 bn and deposits of around $8.1bn. Noel Quinn, HSBC Group CEO, said, "This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally. We welcome SVB UK's customers to HSBC and look forward to helping them grow in the UK and around the world. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC. We warmly welcome SVB UK colleagues to HSBC, we are excited to start working with them."
One pound fish, very very good, very very cheap ! (Score:2, Funny)
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A Bank is a Bank is Bank (Score:5, Insightful)
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I'm hoping you really wrote that in Cockney rhyming slang. They are all wankers.
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"So, HSBC, then. The most corrupt bank in the world."
Hongkong and Shanghai Banking Corporation Limited, I thought they were pariahs nowadays.
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How can you tell which banker is a thief and which one is not?
There should have been a bidding process (Score:5, Interesting)
I mean, I would have paid at least 2 pounds.
Re:There should have been a bidding process (Score:5, Informative)
I mean, I would have paid at least 2 pounds.
That would have been a bad move unless you have a way to hege your purchase against something else. Reminder: what HSBC bought was a liability. Not being funny with language here, but an actual financial liability on it's balance sheet. The $1.2 was only handed over as many contracts require the exchange of "consideration" to lock the contract in place. In this case it was 1 pound and what they got for it has a paper worth of a negative fuckton pounds
Re:There should have been a bidding process (Score:4, Funny)
> a negative fuckton pounds
Another useful case for Imperial Units.
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I thought the pound was an Imperial unit,
Both kinds
Re: There should have been a bidding process (Score:2)
Not really a liability. Just a cash flow problem due to underperforming assets.
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A cash flow problem is a liability. If I owe $1 now, it doesn't help me if I have $10 in bonds that mature in a few years or that I can't sell. What I have is a fiscal liability I can't address.
Re: There should have been a bidding process (Score:2)
But the bank has assets too. Assets enough to cover all liabilities. So the company's equity is still positive and is thus an asset overall, not a liability.
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I'm guessing that the Bank of England uses a different valuation methodology than the US Federal Reserve, and the UK branches were either going to hold up a sale, or favors could be arranged where it was in the interest of the Fed to sell the UK branches to HSBC for 1 pound sterling. All that HSBC was purchasing was "branding". Still, it seems like a ridiculously generous price if HSBC gets the UK loan portfolio.
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That would have been a bad move unless you have a way to hege your purchase against something else. Reminder: what HSBC bought was a liability. Not being funny with language here, but an actual financial liability on it's balance sheet
What HSBC bought was effectively a zero balance sheet. All of SVB's investors are out of luck, completely. HSBC owes them nothing. And even most of SVB's creditors will take a loss. The FDIC structures the deals this way because otherwise no one would buy failed banks, which would have to go through bankruptcy proceedings, meaning creditors would get stiffed anyway, the FDIC might have to pay out, and confidence in the banking system would be shaken. Instead, the acquiring bank gets to simply wipe away most
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As per the summary above :
As at 10 March 2023, SVB UK had loans of around $6.6 bn and deposits of around $8.1bn
I understand SVB has enough assets to cover the deposits - it's only a matter of liquidity.
HSBC may have enough liquidity to cover even if 100% of the deposits are withdrawn. I mean they are a much larger bank, so 8B is possibly something they can afford to pay up front if needed (all of SVB clients do a bank run and withdraw the 8B in a few days) while they slowly wait for the bond / investments m
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I understand SVB has enough assets to cover the deposits - it's only a matter of liquidity.
Non liquid assets at a time of debt forcing your balance sheet negative is very much a liability by definition in the financial world. That was my point. It makes sense for HSBC to acquire them as they have enough liquid assets themselves to cover the deposits. This is the reason the purchase cost was so low compared to the total value.
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I mean, I would have paid at least 2 pounds.
FWIW, this is standard procedure, and actually happens all the time. Banks fail every week. Mostly they don't make the news because they're not as big or newsworthy as SVB, but it's a common occurrence. And the way the FDIC is handling it is normal, too.
Standard procedure is that the failing bank shuts down on Friday, the FDIC arranges a "sale" for essentially nothing to another, healthy bank, which typically retains most of the staff and opens its doors at 9 AM on Monday morning. Depositors don't lose an
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Except in thise cases you don't hear the White House getting involved. SVB was sitting on 20% unrealized losses in long term bonds. The government bailed out a certain narrow class of people and set a precedent.
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You spelled Conservatives wrong.
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Stop with that nonsense. One party now has a drag queen and a 36 year old grandmother in congress and it's not the one you're thinking of.
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Why is this still happening? (Score:2)
After the 2008 crash I thought the rules had changed so that banks had to be less exposed to market fluctuations and have a greater reserve in order to compensate for 1 or more investments going belly up. So WTF happeneed with SVB? Are the rules lax or did they not bother following them and some C-suites will be facing charges?
Re:Why is this still happening? (Score:5, Informative)
This is not like the previous financial crisis, we're not talking junk investments like CDOs etc. SVB (and plenty of other banks) put a lot of their deposits in to "safe" long term government bonds. However, one effect of the Fed's rate hiking to fight inflation is to reduce the value of long term bonds - you can get higher yield on short term bonds right now (the so-called "yield curve inversion"), so who wants to lock up their funds for ten years when you can get higher yield over two years. That means that if they are forced to sell those bonds *right now*, as opposed to holding them for the duration, then their holdings are worth a lot less in actuality than they are on paper, and they're going to get wrecked.
It's hard to argue that investing in long-term government bonds is a reckless move, as they're generally considered one of the safest, most conservative options. Nobody foresaw the Fed hiking rates so far so fast as they have done, and decisions taken against a backdrop of many years of stable, low interest rates, are starting to look a bit different now. Many analysts have predicted that these interest rate hikes are going to break stuff, and we're seeing that now. Let's hope this is not just the tip of the iceberg.
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may I offer you an explanation, it is mine from 11 years ago, but I think it shows a line of reasoning that should make sense to you especially given what happened just now.
https://slashdot.org/comments.... [slashdot.org]
Real inflation in USA is huge, it caused the depression of 1921, the Great Depression, the stagflation of the seventies, all of the bubbles that happened in the meantime, including the stock market bubble of the nineties and the housing bubble, and the largest bubble of all bubbles, the credit bubble, the bubble in government, in US debt and dollars
some are being sarcastic, saying that obviously nobody would ever believe that government debt (bonds, bills, dollars themselves) can be a 'risky investment'. I believed it to be the riskiest of investments for about 20 years now. I am talking about inflation that the governments create - money printin
Re:Why is this still happening? (Score:5, Interesting)
Government bonds from stable countries like the USA, UK etc. are extremely safe. The UK for example has *NEVER* failed to pay out on a bond *EVER*. The bonds that SVB purchased *WILL* be paid out in full when they mature. The problem is if you need the money tied up in the bond *BEFORE* it matures. Then you might have to sell the bond for a fraction of the price you paid for it and lose money. SVB brought long-term bonds which was probably very stupid. These are the territory of pension funds and the like, not banks tying up depositor's money.
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The UK for example has *NEVER* failed to pay out on a bond *EVER*.
I know it's not what's going on here, but just to point out that until the national socialists took over, the weimar republic didn't fail to pay out a bond either.
Using the argument that they are safe because they've never defaulted doesn't really make sense for a sovereign currency issuer. Really, they are just considered safer because nobody expects the UK productive capacity to collapse.
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In the case of the UK we are talking many hundreds of years of never defaulting on bonds. I suspect the USA is the same. The Weimar republic barely had 50 years of history of bond payments when Germany defaulted in the 1920's.
It's why in the financial crash of 2007 the UK was able to issue bonds at a lower rate that it was offering as an interest rate on loans to the Irish government to bail them out. Eventually there was a fuss about it and we stopped making money on the deal, which I think was the wrong a
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SVB brought long-term bonds which was probably very stupid. These are the territory of pension funds and the like, not banks tying up depositor's money.
In their defenses, the Federal Reserve itself projected interest rates of 0.1% through September 2023 [federalreserve.gov].
It has now set the rate at ~50x that.
Certainly SVB's decision was not as a prescient as it could have been. But I don't think it was as obviously foolhardy as some are declaring either (or where did they call SVB out at the time?). Some amount of blame has to belong with the government that minimized concern about inflation while they were getting their desired inflationary legislation passed and reacted wi
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SVB brought long-term bonds which was probably very stupid.
The duration of the bonds depends as you rightfully said on when you need money. *Most* banks invest a considerable portion of their holdings in long term bonds. The issue here is SVB's customer base is somewhat uniquely affected by the shitfuckery that went on the last 3 years which put quite a bit of pressure on them to have more liquid holdings than normal for a bank. Combine that with several prominent customers (e.g. Thiel) advising others to pull out all their deposits and you have an instant crisis o
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As I've said elsewhere, it wasn't the US gov't (Federal Reserve) that fucked up. It was the incompetent CEO & CFO of SiVB bank.
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SVB (and plenty of other banks) put a lot of their deposits in to "safe" long term government bonds.
That's not accurate at all. I don't know what the capitalisation ratio requirements were for them, but it would have been a mere fraction of depositors funds that were in govt bonds. Most of the funds would have their loan book secured against them.
And that's really where the trouble has occurred, since, as you pointed out, all other banks have the same problem with falling bond prices, yet they aren't having bank runs.
People got a sniff that their loan book was going bad, and started bailing. Apparently it
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Their website says $74B total loans, $342B total client funds, so most of the funds being secured against their loan book doesn't stack up. The Financial Times article on SVBs demise says "Searching for yield in an era of ultra-low interest rates, it ramped up investment in a $120bn portfolio of highly rated government-backed securities, $91bn of these in fixed-rate mortgage bonds carrying an average interest rate of just 1.64 per cent. While slightly higher than the meagre returns it could earn from short-
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Nobody foresaw the Fed hiking rates so far so fast as they have done,
Bullshit. The US has been experiencing skyrocketing inflation for almost two years. The Fed has only one tool to combat it; hiking rates. Fuck the greedy, dumbass bankers that don't know how to run a bank properly and manage liquidity issues.
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par for the course, my comment above is marked as Troll. A Troll, saying that the Fed will be buying up bad US debt, which is exactly what is happening, a factual statement.
Our world today is the post truth world, where SCOTUS nominees cannot define what a woman is and repeating what Jannet Yellen promises https://www.wsj.com/articles/f... [wsj.com] marks a comment as a 'Troll'...
who is still surprised at the current state of affairs in this reality?
Re:Why is this still happening? (Score:5, Informative)
The remaining bank, SVB, didn't have any real crypto connections. They did service tech-sector companies, and there's been a slowdown in the tech sector recently... I don't know, maybe we can blame Peter Thiel for this one. He seems to have instigated the run on SVB, and SVB was likewise vulnerable for the same reason as above.
The vulnerability is also related to the sudden increase in interest rates around the world, raised in an effort to combat inflation.
The reason why this isn't costing tax payers anything is because these banks haven't lost substantial money on investments. Their assets do cover the full value of their customers' accounts, it's just liquidity that they lack. It seems unlikely that anyone will be criminally charged for any of this. They really didn't do anything wrong, though perhaps they made some mistakes. Non-criminal mistakes.
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They really didn't do anything wrong, though perhaps they made some mistakes. Non-criminal mistakes.
Well, paying out millions in bonuses just hours before the FDIC seizure [cnbc.com] and the CEO dumping $3.6 million of SVB stock weeks before the collapse [forbes.com] might or might not be technically criminal, but most reasonable people would consider it not only "wrong," but downright slimy and immoral behavior. I hope these fuckers do some jail time, or at the very least are never allowed anywhere near a bank management posit
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I don't know about the bonuses, but the stock dump does look like it might be insider trading.
The "stock dump" was an automatic sale of some of his options that had been programmed and locked in far in advance (to avoid any hint of insider trading), while the bank was solvent and appeared to be in good shape up to the last week or so.
High officers of corporations generally get a lot - sometimes all - of their pay as stock options. That way they get paid a bunch more if the stockholders do well, so they hav
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The difference between this and a failed investment is that the money is still there, so the FDIC can pay out people's accounts without spending any taxpayer dollars.
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SVB didn't have treasury bonds, they had about $80b in mortgage-backed securities. Silvergate had treasury bonds. Not that the difference really matters in this case.
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Second, I'm not entirely sure what you mean by interest-free loans. In the above case the FDIC is essentially purchasing the assets at face value and then using the money from that purchase to pay out the accounts of depositors. And if the FDIC were an investor this would incur an opportunity cost, since those assets will pay out at a lower
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Totally a handout and no possible way to be profitable.
The point above was that the FDIC is not an investor. Profitability is not the point. If the FDIC buys these $80b worth of bonds and holds them to maturity, then the FDIC will gets its $80b back, plus interest. Yes, it's true that an investor would incur an opportunity cost. I already covered that.
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I said above that they hadn't lost substantial money on investments, and here you're contradicting me. That depends on how you look at it, but what I was really getting at was that this is not what wiped out their investors in the way that you'd expect from a typical bank failure.
That's all really.
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(My comment may age badly if this evolves into a general banking crisis)
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They are only "destroyed" if you need to cash in on them early by selling them to someone else. Generally speaking, banks buying long-term bonds is probably not a good idea. That's usually the domain of pension funds. I would note that the value of a long term bond if you wish to sell on has been decimated just about everywhere, including here in the UK. No government fucked things up because banks brought long term bonds without considering the risk should interest rates rise and they needed to sell them o
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Generally speaking, banks buying long-term bonds is probably not a good idea
Doesn't matter. Its 2023; 16 years after 2007 banking collapse. Banks have to meet higher minimum liquidity requirements than 2007 today. Their problem wasn't that they used a large amount of it in US Treasury bonds; the problem was they didn't properly hedge it with riskier, higher paying financial instruments like CDOs.
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No. Buying 6 and 10 year treasury bonds for holding customer deposits as a bank is stupid. Those sorts of bonds are meant for pension funds and annuity providers. There was no need to hedge things with risker financial instruments. It also does not help that Trump as a consequence of lobbying by SVB and others exempted banks the size of SVB of lots of the regulations brought in as a result of the 2007 banking collapse.
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> Essentially the US government fucked things up.
I prefer to blame the incompetence of SiVB's CFO and CEO. If they made the effort to properly hedge the value of their bond asset portfolio, they most likely would not have gone under, and near definitely not have gone under this year, even with the Fed raising interest rates.
Probably a mistake (Score:2)
Buying a bank that has collapsed due to loans at the start of a global recession (and the start of a UK-specific recession*) doesn't smack of great thinking. The chances are, the liabilities will grow rapidly due to an accelerating failure of startups that they've lent money to, and that the liabilities will grow a lot faster than HSBC is anticipating.
*Between Brexit and the bonfire of UK treaties, laws, and even parliament itself that is currently being voted on is causing the UK to contract, outside of an
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120 pennies- WHAT A BARGAIN!
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The investors in the bank are relieved? (Score:2)
Why... when HSBC has been censured and find for MONEY LAUNDERING.
$1.2 ?! Like running 109,361 yards ?! (Score:2)
It IS ONE POUND. Or £1.00 ( if Slashdot doesn't fark up the symbol ).
Good Price (Score:2)
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I'd gladly pay a dollar and twenty cents for it. Real good deal-o.
HSBC has billions of dollars of assets to cover this short term liquidity problem, and experience (and a license) in banking. Do you?
Re: do you own any money? (Score:5, Informative)
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IMO gold will never have inflows like bit coin, crypto and tech.
It'll never have OUTflows like those, either! *rimshot* Thanks, I'll be here all week!
Re: do you own any money? (Score:5, Interesting)
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so if instead of gold you had a stash of USD on hand, how much of it do you think you would have recovered from the flood? I take it you prefer to hold your gold in the mountains of Colorado instead of a safety deposit box. Why would you bring silver or gold to a dentist instead of trading it for USD to pay your dentist?
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Re: do you own any money? (Score:4, Funny)
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One doesn't invest in Gold, they save in Gold.
A gold coin a hundred years ago, can buy yourself a nice Tailored Suit. that Gold coin today can still buy a nice Tailored Suit.
While the price in USD has risen, it kept in par with inflation so you didn't grow any wealth, but preserved the wealth you already had.
Granted Gold is better than keeping it a savings bank, but other methods of investments are much better.
Re: do you own any money? (Score:3)
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It must have been in the joint administrative region of "Lomo de Puerco".
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Re:do you own any money? (Score:5, Informative)
Gold is worthless, invest in brass. With brass I can take your gold.
Seriously, in a event of world bank collapse, only guns and ammo will matter. Anyone who doesn't have that, good physical fitness, knowledge of agriculture, and 'street smarts' is basically dead at best and a slave at worst.
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A nation can have hyperinflation and still survive it. And if there is a world bank collapse, there will still be civilization; just a very chaotic and unpredictable one. Basically, as long as there is civilization, gold will be a form of abstract value storage. I would easily bet that gold will have more value than your guns and ammo in 50 years, because a functioning civilization is more likely to be there in 50 years, than the end of civlization. (And why can't one have both?)
Re:do you own any money? (Score:5, Insightful)
And in the event that paper money becomes worthless, you think people will use gold and not mostly a barter system? Why do I want your shiny stone when the guy down the road will trade me grain?
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gold has been money for thousands of years precisely because it doesn't spoil, easy to recognize and test, easily divisible, etc. If you produce grain and sell 10 tons of it do you prefer keep its value in chicken eggs?
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If society really does collapse your gold is worthless. You can't eat gold. Guns and ammo will be the currency.
Re: do you own any money? (Score:2)
Society has collapsed before. Gold still held its value.
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Guns and ammo are useless without trained and able men to use them, and defensible or well hidden positions to store them.
And defensible positions can be sieged, so you'd better also have a good supply of food and water or you're just going to starve to death in your fortress.
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Gold has been money for a few thousand years, in the highest levels of the most organized civilizations. Despite the movies showing medieval peasants biting gold coins, the majority of people didn't ever see any. And the stuff didn't really catch on until a bunch of European countries decided fairly arbitrarily that whoever had the most won.
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And papyrus + ink applied with a feather from a goose's ass was used for thousands of years to record knowledge, until we came up with something measurably better in every single way: the printing press, followed by digital storage and electronic communications networks for transfer.
You can feel free to go back to the quill and smashing plants into a medium for ink transfer if you like, but don't expect the other ~7 billion people on the planet to follow you and your luddite argument of "if it was good enou
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Gold is not money, and to say so is unbelievably stupid. Money is something that people widely accept in trade for goods and services.
Is the pimple-faced youth working the grocery store cash register down the street going to accept gold nuggets in trade for eggs and meat? They'll take US Dollars no problem, as either cash or by way of electronic payment.
And I'm absolutely sure my local utility companies won't mind me mailing them some gold dust to pay the utility bills either, right? One question though:
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Gold is not an investment, and it is not money. Gold is a financial hedge; an insurance policy which will retain wealth in a fiat currency economy. If you have the wealth to put thousands of discretionary dollars into an investment bank, it won't kill you to purchase/possess a kilobar of gold.
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1. you are silly if you think that a bank buying gold is a better play than buying long term bonds as a hedge against inflation. Hint: literally every single financial institution uses bonds this way - don't you think that their armies of Ph.D's in statistical and macroeconomic analysis might have all come to the same conclusion for a reason?
2. The bonds that SVB is holding are still worth exactly what they were when purchased. SVB's issue is that they can't liquidate them *right now* in order to cover wi
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So you've been saying this for decades, and none of it has ever come to pass... but everyone else is wrong?
Those are some top notch logic skills you're employing there.
Re:The reason for SVB's failure. US treasury bonds (Score:5, Informative)
Putting depositors' money into long-term government bonds sounds like a daft idea to me. The bonds themselves are not risky, but you are relying on being able to hold them for the duration of the bond, which *IS* risky and where SVB came unstuck. Long-term government bonds are usually purchased by pension funds and the like, not banks to hold depositors' money.
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> So they received 140bn that needed to be invested _somehow_.
Like @jabuzz said, "long-term" is the problem.
They put the money into 10-yr bills with substantial penalties for early withdrawal.
Normal banks buy 2-year bills with lower rates of return but less penalty for liquidating.
SVB was greedy - just like their depositors who flouted deposit insurance rules.
You can pay people to protect your deposits but they didn't want the cost and now The Fed is bailing them out.
Had SVB not gone under Big Tech would
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You can't cash in a treasury bond early. A 10 year bond pays out after 10 years, not a day sooner or a day later. If you need the money earlier you have to sell it to someone else, and given that you can get a better yield by buying new bonds directly from the treasury then any buyer of your 10 year bond is going to want a haircut on the value of the bond.
Really 10 year bonds are for pension funds and annuity providers *NOT* for holding depositors cash.
Re:The reason for SVB's failure. US treasury bonds (Score:5, Insightful)
They could have put the money in US T-bills (1-6 mo duration) instead of 10-year T-bonds and not have this liquidity issue.
They knew their depositors (SV start-ups) had a substantial burn rate (which means outflows), but chose to park the money in long-term T-bonds. It's beyond me to understand the stupidity.
I also don't understand the stupidity of the depositors - CFO/Treasury should have known better than to leave the company treasury in a bank account. After all, they need to sign an acknowledgement that the deposit is not FDIC insured - that ought to make you think at least a little bit.
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The startups I've been associated with all use multiple accounts for their operating capital for exactly this reason. The approach means a little more bookkeeping, but it is worth the risk reduction. They also have put their non-operating capital in secure medium-term deposits, like T-bills, shifting into cash on a quarterly basis. And all four of them had liquidation events that left the founders very well off. It isn't rocket science.
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Problem for some companies is, if you get a loan from a bank, part of the deal requires you to use the bank you are getting the loan from for all your banking needs.
So you borrow 10mil for your company from SVB? It going's to get into YOUR account in SVB. And your company can't have any other bank accounts in other banks for the duration of the loan.
And if SVB sinks, ops.
Re:The reason for SVB's failure. US treasury bonds (Score:4, Insightful)
Ironically, the depositors pulling funds to invest in T-bills is what caused SVB to collapse. If you can invest in T-bills at 5% with no credit risk, why would anyone keep the money in the savings account? This is the ultimate problem the government is struggling to address right now and it will cost the taxpayers billions.
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It *IS* a liquidity issue. The treasury bonds will pay out on maturity exactly what they are worth. The problem is that SVB need the money *NOW* not when the bonds mature. They could and should have brought shorter duration bonds and there would not be a problem.
I gather it's pretty normal (Score:2)
This is function as designed, at least from Powell's standpoint. At best this is collateral damage and at worst it's a positive thing to him. This will lead to a ton of layoffs in Silicon Valley, which is what he wants.
Of course, none
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Worse. You're relying on being able to sell the bond to someone else. Everyone got used to using bonds like cash, just like they got used to housing always going up. It works until it doesn't.
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Long-term government bonds are usually purchased by pension funds and the like, not banks to hold depositors' money.
That's not true. Many banks invest a considerable portion of their funds in long term bonds, and it is perfectly fine when your don't have a customer base majority made up of a monoculture who all need access to money at the same time (such as tech startups at a time when the tech industry is crashing).
You're right it is risky by the dictionary definition, anything any bank can do is risky, including just keeping all the money locked in a vault, but it's not unreasonably risky for most banks. SVB got themse