You get an excel sheet with all the assets and their current mark. Then you typically have until late sunday to put the bid in so they can resolve the bank before market opens on Monday.
Source: was part of a team doing this valuation analysis over a very fun weekend in 2008 for one of the famous bank failures
Like the Excel Spreadsheet that FTX was shopping around but accurate and with no "“Hidden, poorly internally labeled ‘fiat@’ account" entry. SVB may have screwed up badly but I don't think anyone is accusing them of bad record keeping or any other impropriety.
SVB itself knows which assets it has, and therefore the FDIC knows. They then send out invitations to bid to banks with the list of assets as an attachment.
EDIT: It's not only the assets that are being bid on, the curator could just sell those themselves. But SVB has (even now) some amount of intangible value in terms of relations with customers, built up expertise in serving startups, etc etc. A bank looking to diversify into providing banking services for startups might be willing to bid more for such expertise and customer lists than a bank which is happy with the customer base it has. So I'd expect it would be mostly the intangibles which drive the potential differences in bids, with the market price of the assets merely serving as floor.
I read that the FDIC is brutally efficient and, if this is true and SVB opens Monday under a different owner as if nothing happened, this statement will certainly be an understatement.
It would be quite funny if JPM ends up being the owner and the startups who rushed to transfer their accounts presumably to JPM just login on Monday and click the cancel button.
Not an FDIC auction, but if you’re interested in what this sort of bidding looks like the book Barbarians at the Gate details the LBO auction of RJR Nabisco. That auction was a lot of bankers squired away in conference rooms on separate floors of an office building while the auctioneers walked bids between the various groups.
Somewhat completely off topic, but with interest rates "skyrocketing" compared to recent history, would it be feasible to "buy back" one's fixed rate debt? Or sensible?
When you have a 10% mortgage and interest rates drop to 2%, you refinance. You borrow a new loan at 2%, buy out your old 10% loan (so you never have to deal with 10% interest rate payments again).
If you have a 2% loan, and interest rates skyrocket to 10%, you absolutely do not sell your 2% loan to reup to 10%. That's just stupid. You keep the 2% loan and even try to slow down payments (if you were double-paying or otherwise cutting down principal before, you stop doing that).
I understand the question to be whether you can liquidate a 2% 20-year loan paying fifty cents on the dollar or whatever the fair amount is. (I guess the answer is no for the usual US mortgages but it could be yes for some kind of loans.)
Interesting thought, treating your debt like a bond.
If you no longer need the debt, i.e. you have the cash to pay it back, you could _theoretically_ loan out that cash to someone else at the higher current market interest rate. Loaning money involves credit risk of course, so practically this would mean buying something like higher interest paying Treasuries or AAA bonds. Effectively, the spread between your borrowed fixed rate debt and the bonds you bought are the _profit_ you make, the NetPresentValue of which is roughly what you would get if you could "buy back" the debt.
That's sorta what I'm doing with my car loan - instead of paying extra principal, I'm putting the money into an FDIC-insured account that pays about twice the interest that I'm paying on my car loan.
You mean you want to pay off 90% of the remaining principle today in order to "buy" the paper at the same haircut that another bank would be able to buy it for? Nope.
In Denmark this is possible and common. Danish mortgages can always be bought back at 100% value (if the rate drops), and for example a 2% mortgage from a few years ago can be bought back around 85% value.
This is really interesting. Nothing like it exists in the US as far as I know.
I am ignorant of current and previous Danish mortgage interest rates. Assuming a 2% mortgage from a few years back, and current interest rates at say 6%, I would expect to buy back at less than 85% value.
So the reason SVB had trouble with their assets is that they had to reprice the mortgage based securities they had to sell off.
If I wanted to buy back my house's mortgage from the bank, they'd ask me to pay the full principal.
But if JP Morgan buys it off SVB, they'd discount the mortgage and pay either 80 cents to the dollar or 50 cents (!), while they get to collect the whole principal & interest back from me as I repay.
What if I could buy it off SVB at fire sale prices, instead of some other financial firm?
This is probably most relevant when you think of medical debt, for example John Oliver's medical debt give away where he bought 14.9 millon dollars in debt for 60k & just forgave it through a non-profit (because debt forgiveness is a taxable event, which is just a tax loophole otherwise).
If you owe a hospital a million dollars and they are willing to sell it for 100k, why should you keep owing a million after its been sold for that price?
These shares are not worthless at all if the bank has a future. SVB's main issue is that you have to wait for the treasuries to get back to the par value once they mature.
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).
That’s what they are doing:
“ The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
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.
If they find a way to agree with the creditor to exchange the cash against shares, they won't owe anything. These shares are backed by long-maturity treasuries, MBS and future business of the 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.
A company has different values for different customers depending on what they are going to do with it.
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.
It's worth what the market deems it's worth, if the SEC doesn't keep dipping their hands in the market and halting trading, Reddit would have a chance to bid up the stock to some nonzero value.
It's not like the valuations of any other tech stock are based on fundamentals either.
turning depositors, probably the most senior possible form of debt, into shareholders, the least senior form of debt, is a garbage deal that nobody in their right mind would take.
Could Microsoft, Apple, Google, or Amazon place a bid
Strategically, a consumer or cloud co w/ a banking arm might make a great strategic position. And the new relationships with the customer base of SVB could accelerate the acquirer
I think they need to be a member of the FDIC to even make a bid. But even if they did not, I doubt these companies would want to be regulated under banking laws or setup the infrastructure to do so. There's a reason why these companies establish "partnerships" with well known banks (ie, Apple x Goldman Sachs). They are simply not setup to deal with the regulation. It's better to farm it out to a well established bank and let them take the hits from violating banking laws at all levels (ie, state vs federal vs international).
I doubt it. Part of the point of the exercise is to calm the rest of the banking market. Letting an inexperienced (re banking) company take over will increase the uncertainty.
Apple had $51bn in cash at the end of 2022. They could easily raise whatever additional funds needed to submit a winning bid. But I don't see them wanting to own a bank. They already have financing options for people to buy their hardware, and Apple Cash is working fine with whatever level of regulation it has.
Readit News
Source: was part of a team doing this valuation analysis over a very fun weekend in 2008 for one of the famous bank failures
nobody is going to pay 100% for them, right?
so it's basically who will pay the most between 50-95% for them?
why wouldn't somebody want assets 5% off (full 95% bid?)
EDIT: It's not only the assets that are being bid on, the curator could just sell those themselves. But SVB has (even now) some amount of intangible value in terms of relations with customers, built up expertise in serving startups, etc etc. A bank looking to diversify into providing banking services for startups might be willing to bid more for such expertise and customer lists than a bank which is happy with the customer base it has. So I'd expect it would be mostly the intangibles which drive the potential differences in bids, with the market price of the assets merely serving as floor.
[0]: https://www.youtube.com/watch?v=xubbVvKbUfY
The angry call from a boss about an unclear footnote.
The suspense!
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If you have a 2% loan, and interest rates skyrocket to 10%, you absolutely do not sell your 2% loan to reup to 10%. That's just stupid. You keep the 2% loan and even try to slow down payments (if you were double-paying or otherwise cutting down principal before, you stop doing that).
If you no longer need the debt, i.e. you have the cash to pay it back, you could _theoretically_ loan out that cash to someone else at the higher current market interest rate. Loaning money involves credit risk of course, so practically this would mean buying something like higher interest paying Treasuries or AAA bonds. Effectively, the spread between your borrowed fixed rate debt and the bonds you bought are the _profit_ you make, the NetPresentValue of which is roughly what you would get if you could "buy back" the debt.
I am ignorant of current and previous Danish mortgage interest rates. Assuming a 2% mortgage from a few years back, and current interest rates at say 6%, I would expect to buy back at less than 85% value.
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If I wanted to buy back my house's mortgage from the bank, they'd ask me to pay the full principal.
But if JP Morgan buys it off SVB, they'd discount the mortgage and pay either 80 cents to the dollar or 50 cents (!), while they get to collect the whole principal & interest back from me as I repay.
What if I could buy it off SVB at fire sale prices, instead of some other financial firm?
This is probably most relevant when you think of medical debt, for example John Oliver's medical debt give away where he bought 14.9 millon dollars in debt for 60k & just forgave it through a non-profit (because debt forgiveness is a taxable event, which is just a tax loophole otherwise).
If you owe a hospital a million dollars and they are willing to sell it for 100k, why should you keep owing a million after its been sold for that price?
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).
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.
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 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.
It's not like the valuations of any other tech stock are based on fundamentals either.
Strategically, a consumer or cloud co w/ a banking arm might make a great strategic position. And the new relationships with the customer base of SVB could accelerate the acquirer
Not to mention all the bundling..