Ackman’s View
“The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits. …. the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below.”
No Bailout Proposals? Really?
Evans said no one was proposing a bailout. He was wrong.
https://twitter.com/benedictevans/status/1634729596489703426
hyperbole? Where?
How Big the Haircuts?
This is a crude way of figuring, but take a look at IEF, the 7-10 year US Treasury fund.
Since July of 2021 (also January 1, 2021) an investor in 7-10 year treasuries is down about 18 percent.
I suspect that is a reasonable starting point in absence of other details.
Mark to Market Losses
I believe that implies a far smaller loss than what I crudely estimated.
Pick a range, say 5 percent to 30 percent. That’s not the end of the world, even on the high end.
When Will Funds Be Available?
Might I suggest Monday?
The Fed, Treasury, and FDIC will easily be able to work this out over the weekend with some sort of idea of maximum loss.
If so, all of the money under the maximum loss scenario will likely be made available early next week, perhaps even Monday.
Silicon Valley Bank depositors undoubtedly understood the risks. And we do not even know the circumstances.
Did SVB promise above market rate interest on deposits? If so, should there be a penalty of chasing yields when you knowingly take risks?
I do not know if that happened but Ackman doesn’t seem to care if it did. I expect Silicon Valley depositors to understand FDIC risk regardless.
Tired of Bailouts and Moral Hazards
A bailout is precisely the wrong thing to do, even though the Fed encourages speculation.
That brings up another valid point. Much of the money Ackman is fuming about was raised precisely because the Fed encouraged speculation.
Had the Fed not done so, the pool of money creating this setup: “(and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation)” would not have been there in the first place. Silicon Valley knew this!
If the Fed makes most of the money available early next week, will any payrolls not be met?
Color me skeptical.
Expect Criminal Indictments of SVB Top Executives
I Expect Criminal Indictments of SVB Top Executives. Bring it on. And stop the financial Armageddon hyperbole.
This post originated at MishTalk.Com.
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Mish
For a bank that has that high a percentage of uninsured deposits it’s more a matter of when they will fail rather than if. Uninsured deposits are not stable funding and this was widely acknowledged by the regulators when they set the outflow rates for commercial deposits under the LCR. These clients will always be the first to leave if they believe there is risk.
Bailouts. Will happen if someone who has an interest(finical or political) has the pull to make it so. Enough money or public opinion can be used to sway in either direction.
Really? All Wall Street and Silicon Valley big brains learned yesterday that deposits are guaranteed to 250k? Are all panicking about that information, running to their banks?
Elon Musk has said he is open to the idea of buying SVB but most people think he is just teasing us and maybe he is……..or maybe not.
SVB will most likely have its client accounts transferred to a solvent institution and the rest of the bank will be sold off in pieces. The personnel of the investment banking unit have already said that they want to buy the unit themselves and there are certainly other parts that would be valuable enough to be bought by other parties.
For Musk the personal online banking part would be the most valuable since it would give Twitter an already up and running payment and money transfer system which could be easily integrated. Additionally, all banks already have their own online payment systems and would not be interested in buying it so in principle it could be bought very cheaply in an auction. A bank wouldn’t be interested but a company like Facebook would but Facebook is already deep into negotiations and partnerships with other banks over this so Facebook is probably already tied up too much with them to change now. Other than Facebook I don’t see who else would be interested in buying SVB’s online banking operations.
If things play out like they look to play out with SVB then it will be broken up and Musk will be able to pick up that part which complements completely with what he wants Twitter to be for a song. I am sure he was well aware of SVB’s fragility, Peter Theil certainly was, and probably has had his eye on doing this for a while now.
Elon ruined people’s trust in him, they aren’t going to trust money to the Bank of Elon
Contempt for entrepreneurs and working people… check!