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.
Although these are all startup founders and VCs, so maybe the strategy will actually work.
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).
(the cramer curse.)
They cannot afford to wait. Depositors have higher priority than shareholders, so any shareholder equity is obviously wiped out and $0. Such is the curse of seniority: the depositors have a stronger legal priority on those bonds than the shareholders, so the depositors get paid first... and the share holders are paid whatever is remaining (probably $0)
You don't need SVB to be an ongoing concern to do this. If SVB is liquidated and its depositors are paid from that sale, they can just buy back those same bonds on the open market for the same price if they want to wait them out.
This is what happened during the Kerviel scandal in France, when Societe Generale tried to unwind the risky positions of a trader.
Unless the government steps in and decides to purchase these bonds that SVB is selling and add them on its balance sheet... Which essentially would put the burden on the random non-Silicon Valley guys who didn't ask for anything (and it's not fair).
The other thing, is that many companies don't need 100% of their cash. They may just use SVB as storage, and waiting for the bonds to mature may be totally fine rather than take a loss.
Also, during this interval that they have to wait. If capital is needed, VCs may have better capabilities to raise capital at good conditions, rather than a failed 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.
The reason SVB collapsed is because there's not enough treasuries to possibly even pay depositors, let alone bondholders or shareholders. If there were enough treasuries to pay shareholders, then the bank run wouldn't have happened in the first place. (The bank run on Thursday was caused by the sudden realization that there might not be enough money at the bank).
A buyout / successful auction is the best case scenario. If some bank out there is willing to buy SVB and make all their depositors whole again, then win/win for everybody.
This essentially means, that if interest rates raise, then temporarily (the time of the duration of the bond) the bond may be worth less because there are new bonds which are more attractive to the investor.
Once the bond matures, then the full sum is returned to the holder of the bond.
The bank run already happened, so the bank has to sell those bonds for a loss to meet its obligations to their depositors. Because of the interest rate changes, they are forced to sell those 10Y and 30Y bonds for a 20% loss (or greater).
As such, the bank is underwater. FDIC is looking for a buyer who is willing to lose a little bit of money in the short term, but maybe gain some customers in the long term.
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There's no time to wait 10 Years. The bank needed the money 3 days ago.
Sure, banking has a fair amount of inertia, but eventually people realize that they are leaving FDIC insured money on the table.
Chase is still offering 0.01% on savings accounts, and somehow has deposits. 1.5% is generous compared to that, even though it's much less than you can get with a little shopping around.
Aside from not making large unmatched unhedged yield curve bets, not marking portfolio prices to market was a problem for SVB.
You can't make whole the current depositors by saying that they'll get the same quantity of 203x-dollars (because you owe them 2023-dollars which are worth more), you can't make whole the current depositors by trading the future claims on these 203x dollars (i.e. bonds) to someone else because the price you can get is not enough to make them whole; and you can't make whole the current depositors by paying them back in year 203x their dollars with market-rate interest because you don't have enough assets to cover that market-rate interest, only the low, low interest that SVB fixed last year or before.
And I think I read that SVB's losses this week exceeded their cumulative profits since inception so it seems likely that even 100% ownership of the company wouldn't be valuable enough to make their customers whole.
Another way could also be to apply when you are withdrawing the money:
1st yr: 10% withdraw fee
2nd yr: 9% withdraw fee
3rd yr: 8% withdraw fee
etc
with the rate adjusting down every year.
Now the people who missed the memo are crying about it. Guys like Sacks have taken to Twitter to cry and whine about how they are like poor farmers or whatever.
The reality is the FDIC is good at what it does, and it’s probably best to wait until tomorrow before getting hot and bothered about it. If you want to get angry, ponder how the people who coordinated the bank run got the information used to trigger it.
He probably gains reputation by advising people to get out of a bank that fails. Although he probably advised them to use it in the first place.
It's not like the valuations of any other tech stock are based on fundamentals either.
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.
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.