"My startup's entire cash position is gone and I can't make payroll next week, but hey at least I get these worthless shares of a failed company!"
Although these are all startup founders and VCs, so maybe the strategy will actually work.
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.