Ask HN: How is the SVB situation affecting your startup? | Hacker News Reader

Ask HN: How is the SVB situation affecting your startup?

161 pointssimonebrunozzi188 comments

It's no news that Silicon Valley Bank is experiencing some trouble.

Since most startups in the US bank with them, would you like to share some details of your current situation?

Disclaimer: I know next to nothing about the financial system or banking inside baseball. This is just one founder's reaction to the whole mess.

We were reluctant to move our funds most of the day yesterday. Felt like a lot of dumb panic. We had emails from a few investors, most saying "stay calm" but one saying "move your money to this bank that I'm invested in!" ugh.

We decided near the end of the day to move at least half our funds (in a money market) out, but by then it was too late to initiate anything. Now we're finding this morning nobody at SVB is returning our calls. We are able to log into the online portal just fine. So not sure if/when we'll be able to to move anything.

Annoyingly, we're moving it because everyone else is moving it. I know it's a really dumb, self-fulling prophecy but at this point you don't want to be the last in line.

Note: I'm still not actually worried that our money will evaporate permanently. But I can definitely see a situation where it is inaccessible for several weeks, causing issues with payroll and operations. I expect worst case a large bank will swoop in last second and buy all the dumb investment vehicles/bonds for pennies on the dollar and then our access to cash will come back.

When assets << liabilities nobody wants to buy the bank. Especially when you don't get any time to do due diligence.

This isn't just a liquidity problem, this is a solvency problem. The bonds they have aren't temporarily worth less because nobody wants to buy them, the bonds are liquid and have a fair market value based on the current interest rate environment.

Your cash isn't at the bank anymore. Your cash has been invested in bonds and those bonds are now worth less than the number you see in your bank account. That's bad.

It's not a solvency problem. The bonds are valued based on when they mature, not what they fetch on the open market.

It is a liquidity issue, which means the money is there, but they can not access the money in the amount of time they need it by.

No, it's absolutely a solvency issue.

A 2023 USD is not the same thing as a 2043 USD; those are difference currencies with an exchange rate. (That'd be nice, but we've collectively agreed a little inflation is good.)

Liquidity is a logistical issue.

Solvency is a value issue.

You cannot with a straight face say "It's just a liquidity issue......that lasts many years."

It is a solvency issue because they are legally obligated to give people their money back when they ask for it. If none of the customers would withdraw money for the next 10 years they would be fine.

But the customers are startups that have expenses like payroll and AWS. And the climate for raising money is bad, which means a lot of money is being withdrawn every month, and not much new money is getting deposited.

That is not what insolvent means though. There is a difference in not being able to pay back depositors bc you gambled it away on magic beans vs it’s tied up in safe bonds. In both situations you can’t satisfy depositors immediately, but they’re otherwise very different.

For one thing, people buy companies that are insolvent, eg svb, they don’t buy magic bean farms, eg ftx.

The money is not tied up in bonds. Because those bonds are liquid and can be sold on the market in exchange for dollars. And when depositors ask for their money the bank is forced to sell those bonds at a big loss to get dollars. That results in assets < liabilities. Which is insolvency.

All the small banks are going to face this problem.

There is that economic adage attributed to Keynes: In the long run we're all dead.

If you need money but your current assets in whatever form can't furnish that fund for you, I am afraid you're broke.

So you're saying having zero money is equivalent to having future money that can be borrowed against in the present?

Obviously the latter is not as good as just having money. But it's clearly better than the former.

Therein lies the difference between solvency and liquidity problems.

Not at all, my point is to avoid fancy words like "solvency" and "liquidity", they blind you to the basic fact that if you need cash today and you can't get it then you're broke.

Whether you have assets that *you* believe you could draw on in the future doesn't matter when your need is immediate.

You say blindingly fancy words. I say important difference.

You say basic fact. I say oversimplification.

We can argue about the semantics of the word "broke", but the difference here is between losing all your money vs. having to take out a loan now that you're pretty much guaranteed to be able to repay when your bonds mature and only losing the interest payments on that loan.

But here's the the bugger: Folk don't give you loans when you're insolvent.

That's why it's so much better to be illiquid! :)

If you're willing to close your account with payment in bonds that mature in 8 years sure, if you're looking to withdraw cash, no.

>The bonds they have aren't temporarily worth less because nobody wants to buy them, the bonds are liquid and have a fair market value based on the current interest rate environment.

Maybe I’m missing something but couldn’t you just potentially wait for the bonds to mature?

"Dear customer, we're currently having a teensy tiny problem with liquidity. Kindly do not withdraw any money for the next 10 years. No worries, though! Everything is fine. Please don't panic."

From what I understand, for this method to become profitable (or even reasonably close) the interest rates have to drop down to where they were when the bonds were purchased. Otherwise the bond yields will never be worth it and the price of the bond(s) continue to stay lower than what they were purchased for.

These bonds were most likely purchased when interest rates were near 0 and I don't think anyone is banking on those rates returning any time soon.

That being said, I'm going off of some basic reading I've done this morning: https://www.fbfs.com/learning-center/bonds-interest-rates-an...

Stupid question but why were they buying bonds when interest rated was near 0? Were they betting on negative interest rates?

Short-term rates were near 0, but Long-term rates were 1.x%, which doesn't sound like much but keep in mind they bought tens of billions of dollars of these bonds.

That 1.x% on that huge amount would be over $1 Billion per year.

It's a mismatch in terms of the duration, ie your depositors can ask for their money back at any time but the bonds don't mature for many years, but as long as the deposits are kept there the bank can get away with it.

The succinct answer is: Greed.

This is a concise follow up, nicely put.

May I ask you why do you sound so calm and confident that your money will not evaporate permanently (above the FDIC guarantee)? Banks going bust is a totally normal thing in a capitalist system, and bigger more established banks than SVB have done so only a decade ago.

There have been pretty much zero instances of people's money evaporating from U.S. bank accounts, even above the FDIC guarantee.

Not sure why this is downvoted. FDIC-insured accounts have never lost funds in the nearly 100 years since the FDIC was established. And I think there was one? maybe two? times depositors lost funds in excess of the FDIC limits over that same time frame?

Failed banks that have been resolved by the FDIC have, in fact, seen depositors lose money on non-insured deposits (i.e. deposits in excess of the insurance limits). FDIC makes payments, called "dividends", to depositors. The history of dividend payments for failed banks can be found here [0]. For reference, SVB has about $200B in assets.

The largest failure to-date was WaMu in the 2008 financial (approx $300B in assets). Depositors were paid back 100%. The largest failure prior to WaMu was IndyMac (approx $100B in assets). Depositors were paid back 50%. No additional dividends have been paid out to depositors.

According to Wikipedia [1], the last three >$1B failures were Guaranty in 2017, Doral in 2015, and First National in 2013. Depositors in each of these three cases received less than 100%, averaging around 80%.

[0] - https://closedbanks.fdic.gov/dividends/ [1] - https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_U...

When Lehman Brothers collapsed in 2008, many people lost money over $100k. So many, that FDIC retroactively raised the insured limit to $250k and made people whole up to $250k. A lot of the money over that simply evaporated. Today, the limit is $250k, but as SVB's clients were mostly startups, and startups need to make payroll and pay operating expenses like their AWS/GCP bill, they'd easily have cash in excess of $250k at SVB.

>> When Lehman Brothers collapsed in 2008, many people lost money over $100k. So many, that FDIC retroactively raised the insured limit to $250k and made people whole up to $250k. A lot of the money over that simply evaporated.

That's not at all true.. 100% of Lehman customers received 100% of their funds. Secured creditors also received 100% of their funds.

https://www.sipc.org/news-and-media/news-releases/20220928

100% of depositor funds from WaMu (including every penny over the FDIC limit) were safe as well after the Chase buyout.

https://www.fdic.gov/resources/resolutions/bank-failures/fai....

From your link https://www.sipc.org/news-and-media/news-releases/20220928:

> Distributions to unsecured general creditors with allowed claims totaled over $9.372 billion, representing a 41.2841 percent recovery.

That sure sounds like 58.7259% didn't recover what they were owed. Mind explaining why that isn't the case?

And what about IndyMac? IndyMac depositors only got 50 cents on the dollar.

https://www.depositaccounts.com/blog/indymac-depositors-are-...

Unsecured creditors in Lehman Brothers were entities like other banks and hedge funds who either offered unsecured credit lines or bank loans -- they're inherently risky and have nothing to do with retail or consumer banking. Those entities ate the losses and none of their customers lost money. It's good and appropriate they saw haircuts after the depositors and secured creditors were repaid in full.

Indymac is an interesting case - their insured depositors were made whole at $100k and then the uninsured amounts were paid out immediately at 50% -- but then that is indeed when Dodd Frank did the retroactive FDIC raise to $250k -- so all of their depositors were fully reimbursed at $250k and presumably there were some losses of uninsured beyond that. It was a weird entity, they didn't have any debt or secured creditors so there wasn't anything else for an acquiring bank to buy once it was bankrupt. Very different than SVB but fair enough, a case where uninsured depositors lost some money in a bank run.

Unsecured creditors also includes anyone holding their stock, so if you held any shares of SIVB before today, you're sitting on a big fat goose egg.

Equity holders are a lower precedence still from the unsecured creditors but nobody wants to bail either of them out - they took a risk and it didn’t pay off. Their investment is worth zero. People and companies who had cash in checking accounts weren’t taking any imprudent risk.

To be sure, Lehman Brothers was not a depository institution. FDIC insurance protects only insured deposits up to the limits, and thus was not in play for creditors to Lehman.

The banks a decade ago got bailed out. None of their customers lost money.

A bailout is not guaranteed. How long it takes to be made whole is unknown. How long can you go without cash while regulators work out the details. How long will payroll and creditors wait for you to get your cash back.

Hope for the best, plan for the worst.

Edit (epoch time 16784666958): https://www.cnbc.com/2023/03/10/silicon-valley-bank-is-shut-... (Silicon Valley Bank is shut down by regulators, FDIC to protect insured deposits)

Nonsense. A bailout has more precedent now, and the current political situation with the Democrats in the White House virtually guarantees it. The last bailout never had a precedent or approval of the American people, but they did it anyway and they will do it again.

Capitalism doesn’t allow planning for the worst. Karl Marx showed us this 150 years ago, and the working class is regularly reminded in blood, but the ruling class just never seems to get it. I wonder why.

Dodd Frank did away with bail outs. It will be a “bail in” using customer deposits this time around.

>Capitalism doesn’t allow planning for the worst.

Governments bailing out banks is not capitalism.

Not all of the banks got bailed out. Lehman Brothers is the one that started the panic because the feds didn't bail it out.

> Felt like a lot of dumb panic.

A lesson everyone should have learned from the toilet paper scarcity crisis during the pandemic is that it doesn't matter if it's rational or smart, if you want to keep your ass clean make sure you're in the front of a line when people are panicking.

You could make a pretty compelling argument that the last decade the entire tech sector has been propped up by "dumb exuberance", but people aren't complaining about the money they made during that period.

If you can tell that people are panicking, you're not at the front of the line.

I’m reusing that.

Well this comment aged well

At least you're able to acknowledge your mistakes. For your employee's sakes, I hope you're able to make next payroll.

Thoughts now?

> Annoyingly, we're moving it because everyone else is moving it. I know it's a really dumb, self-fulling prophecy but at this point you don't want to be the last in line.

On the bright side, Ronnie James Dio wrote a song about your current predicament.

I guess you were right - In historic last-minute deal, HSBC acquires Silicon Valley Bank UK, says all depositors’ money is safe

https://techcrunch.com/2023/03/13/in-historic-last-minute-de...

CNBC (live TV) is reporting efforts to raise capital have failed and deposits are fleeing faster than talks about a sale are proceeding. Lots of reports that its online banking systems are "down" or suspended.

IMO there's a very good chance the bank enters FDIC receivership by Monday, and there may not be room to maneuver much anymore.

Edit 10:05 am eastern: David Faber live on CNBC says he's hearing deposits are flowing out too quickly for a sale to be negotiated. Quote: "That may "set up something else" over the weekend"

We only have an SVB account because of Stripe Atlas. Back then (2020) SVB was the only option, they hadn't added Mercury yet. I wonder if you still get SVB as an option today, or if Mercury is the default.

I got annoyed with SVB because the online banking feels from the 90s and they charged fees that I found excessive. Switched to Brex a while ago, and never looked back.

I was planning on closing our SVB account for a while, but didn't get around to yet. Now it seems like it might close itself. I wonder what the process will look like to get the $300 back we had on there.

I just went through Atlas in 2023. SVB was still an option, but we went with Mercury, thankfully.

> most startups in the US bank with them

Is this true? And if so, how was this not a major red flag for investors earlier?

From what I gather as an outsider, it sounds like SVB has most of its assets in the form of loans to tech startups and most of its liabilities in the form of deposits from tech startups. This seems like an obvious recipe for disaster in the event of a tech downturn, no?

EDIT: People have clarified that the bonds are the big problem on the assets side, not the loans. They had a bunch of low interest rate bonds that now have to be sold at a loss because interest rates are much higher.

The issue is not that SVB has loaned too much to companies that can't pay it back.

The issue is that SVB took in a lot of deposits in 2021-2022, and locked them into 10 year bonds at 2.5% interest. Now in 2023, a lot of their customers are burning money (withdrawing funds) and aren't raising money (depositing funds), and so they need to start liquidating the 10 year bonds.

The issue is that the 2021 bonds are discounted because interest rates have grown since, and they're out some money unless they can hold the bonds to maturity. So they're raising money to bridge the deficit to allow themselves to hold more of the bonds.

Right, I get the loans don't feature right now, but the reason why depositor behavior is so concentrated is because they're mostly in the same industry affected by the same market forces. To have large numbers of loans out to that same industry at the same time is additional risk, whether or not that particular risk caused problems this time.

EDIT: Elsewhere in the comment thread people have clarified that the bonds are the big problem on the assets side. They had a bunch of low interest rate bonds that now have to be sold at a loss because interest rates are much higher.

Why would they buy 10-year bonds when their depositors are startups, many of whom won't exist in 10 years? Seems like shorter-term T-bills would have been more appropriate, but I know next to nothing about finance.

Because the yield curve is usually upward sloping.

Banks lend for long periods on the expectations that deposits that are withdrawn by some customers are balanced by new deposits from others.

But of course in the current environment there aren't a ton of startups depositing recently-raised funds.

They made a gamble that if they needed to redeem them early that they would be able to do so without much penalty and that they wouldn't need to redeem too much if any (new deposits would cover old assets).

They lost on multiple fronts, interest rates rose so much that it became a huge loss to sell these bonds, the tech market slowed down meaning that fewer companies were getting infusions of cash and more of them were burning through their cash piles and the final death knell was that word of all this got out and it started a bank run.

> They lost on multiple fronts, interest rates rose... the tech market slowed... word of all this got out

The first two are the same thing and the latter is not really an "event" but rather the legally-mandatory observation of the first two? (Unless they want to commit fraud, of course.)

ISTM the issue was that their core product was as shallow as their customers'.

Shorter term bonds typically yield significantly less. Except the past year or so we’ve had “yield inversion” where the shorter term bonds are actually paying out more than long term bonds. This is an indicator of incoming economic downturn as it indicates institutions need cash now and are willing to pay for it.

Right, Talking to some people in the banking industry and the fear is no one know which other banks are in similar situation.

hint: every bank

Most banks dont have the same cash flow in/out profile that SVB are facing thus wont have the same issues.

It was a major red flag! You're right about their liabilities, but their assets are mostly longish duration bonds. When interest rates go up their main customer base (startups) will have a harder time raising money (bad for them) and the value of their bonds will go down (because new bonds offer more interest). And now they're forced to sell these bonds at a loss to cover the money outflow (customers leaving). They're deep in the hole with no way out.

Basically SVB failed basic risk management, and they deserve to go down. You can't promise your customers they can take their money out at any time and then turn around and invest that money in longer duration assets you can't liquidate. Just irresponsible.

Execs selling millions worth of shares in the past weeks is also classy.

So a slow version of Terra Luna.

Resilient system design doesn't just apply to engineers.

it's a totally different situation to Terra/Luna

The Terra/Luna system would work very well when Luna's cap >> Terra.

The SVB system would work very well if the interest rates stay low, when they could liquidate their 10 year bonds for same value (and their start up would be more likely to turn profits as well).

These are all systems designed with assumption that turned out to be false.

SVB has an extremely low loan to deposit ratio (~.45). Most of their assets are in the form of treasuries, bonds, etc.

Depositor concentration is definitely high but that’s not particularly uncommon in banks (though for one of this size it is). But that concentration is what fueled their growth as well.

The eye-opening number was 70% equity to deposit ratio. They were apparently betting the farm on the "there is no alternative" narrative.

> Most of their assets are in the form of treasuries, bonds, etc.

I believe you know what you're talking about, but if that's the case why are they struggling to raise capital to pay depositors?

(I'm asking as an ignorant outsider to banking in general and SVB in particular.)

What doesn't seem to be so explicitly stated is that due to rates going up, the bonds are worth less than they were when rates were high. So they wouldn't have enough money if they turned the bonds into money.

Guy lends you 100 at 3%, you buy 100 of bonds than pay you 5%. Guy asks for his money back, your bonds are worth only 80, big problem.

Looks I said high when I meant low. For people who aren't in finance, if rates go up, bond prices go down: an instrument that pays 10% a year on 100 is worth less when there are new instruments paying 15% a year on 100. For the rates to match the original 100 is now lower, because that's the only way you get the same amount of interest per dollar spent buying the bond.

One of the biggest banks in the world failed to account for a capital management risk scenario where interest rates go up? Insane

Silicon Valley Bank was nowhere near one of the biggest banks in the world.

https://en.wikipedia.org/wiki/List_of_largest_banks

Not even amongst the largest banks in the US:

https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_U...

They're #18 on the US list you linked, I saw other articles saying they were #16 so it probably just depends on the date assets were measured.

The falloff is extremely rapid. They're closer in both an absolute and relative sense to the 40th than even the 10th.

Practically every single bond - which banks effectively have to buy and hold for regulatory reasons - has reduced in mark-to-market value every single day the last 2 years.

Personally I think they are nuts for having (reportedly) such a long average duration of bonds in their portfolio, but they were also paying a pretty decent interest rate on savings to their customers - that money has to come from somewhere.

Treasuries and bonds drop in price when interest rates go up.

in 2021 (when interest rates were low) you might pay 100 cents on the dollar for a treasury that payed 2.5% interest. In 2023, with interest rates much higher, you can no longer sell that treasury for 100 cents on the dollar. People can get much better returns by just buying recent treasury. So you need to sell your bonds lower, at say 95 cents on the dollar. That is an immediate 5% loss.

This is known as 'interest risk' and is really the only risk you have when buying safe bonds like treasuries. The risk is completely avoidable if you can hold your bonds to maturity, so it only matters in a liquidity crunch.

It's more like 50 cents on the dollar.

Interest rates went up. That would be fine if they could hold the bonds until maturity, but to honor withdrawals now they are forced to sell at a loss.

Right! Okay, that makes sense. So the failure on the assets end of the balance sheet was relying on bonds that were purchased at times of historically low interest.

Also, in more normal time they could have put more deposits into shorter term debt that would not have had this problem. But rates were so low that would have been very unattractive.

They factually lost 1.8B on 21B worth of investments, this is an 8.5% loss. Unclear why there's conjecture like previous comments saying its a 25% loss.

They did the right thing by selling out now -- likely because they see more rates raising in the future which would decrease it, so they took the liquidity and then raised a bit of money to cover up that loss (raising 2.25B)

No, they did the wrong thing by selling so late.

Agreed -- but are you saying they shouldn't have sold at all? I don't think you can say it was a "wrong decision" at the moment, I agree that it was too late. But you could also go back and say they shouldn't have invested in the long term assets in the first place.

Or you could go back and say they shouldn't have accepted the deposits without having short-term gain solutions in the first place.

I'm saying they shouldn't have bought what they sold in the first place.

VC's are generally the ones that actively promoted SVB to their investments. There's literally a branch on Sandhill road.

By investors I'm not talking about venture capitalists, I'm talking about the stock market. I'm just surprised that people are just now realizing how bad it is to have the lion's share of Silicon Valley's financial resources centralized in one institution that doesn't have much in the way of other business.

Their success is due to their tight focus though isn’t it? They’ve been around for 40 years and deeply entrenched in the VC ecosystem.

I am very curious whether their poor risk management is new, or if they’ve been playing fast and loose for much longer and only blowing up now.

Since 1980 interest rates have only really ever gone down. Buying long dated bonds at X% and having to sell them a year later at X-1% actually makes you a capital gain.

Old habits die hard.

This is true. most startups are trying to bank with the company I work at now and switch from SVB to us, it is a fucking panic and some of these companies are trying to send us 100's of mill cash in hand

> Is this true? And if so, how was this not a major red flag for investors earlier?

The red flag being......?

There is nothing per se that makes this situation unique to startups.

This would happen to any bank that (1) made bad investments (2) caught the public eye.

What could possibly go wrong running a bank by working with the most volatile companies on Earth with failure rates above 90% lol.

They aren't loaning money to the startups (well, mostly). They handled the banking. This current problem has nothing to do with their clientele, it has to do with long term bonds.

They sell banking services to startups... all companies need some way to manage payroll (for example). Regardless of the balance sheets of their clients, they should have been able to manage assets such that they could fulfill day to day banking needs.

It's that failure to manage assets on the bank side that we're talking about. Startups/clients failing should be a normal event at SVB, given their focus.

As far as I understood it, the 10% which paid off made SVB into the type of bank it is today.

They obviously made a bad move in 2020-21 in thinking the public market was going to crash and what would happen to bond yields, but so did lots of people.

If you think SVB is the only bank which is making high risk decisions to get payoffs, I would suggest you level up and look at what ALL these banks are doing. Faith in the system and long-term risk assessment isn't built into the mentality of banks which have so much invested in equity trading vs. boring deposits.

The financial stability of the depositors had ~0 to do with this situation.

This is completely wrong. This was a classic bank run caused by the startups banking with SVB switching from net depositors to net withdrawers as they aren't able to raise in the current environment and obviously none of them actually make money. The withdrawals start, there was a liquidity and then a panic and boom bank dead.

I think this thread will have tons of views from people in the startup world that are likely to be SVB customers. If we all agree to not do run in the bank, it will improve chances for SVB to make it through the next few days.

I'll start with committing not to withdraw money my company [redacted] holds in the bank.

We stand by SVB.

I invite others to do the same.

Oh man I actually laughed out loud at this. I don't think your HN comment is going to do anything in the face of the classic prisoner's dilemma.

Prisoner's dilemma is a situation where you're only playing the game once, and you have no way to interact with the other participant.

To the extent that this is a single bank run and the other actors are mostly anonymous and there is no way to verify whether or not someone has withdrawn their money then yeah this is a classic prisoner's dilemma and your only hope is to quickly get in line.

However, trying to change the game is also a viable strategy! Public non-anonymized commitments like this are exactly how you tie this into our broader iterated game and escape the nasty equilibrium of prisoner's dilemma.

Oof, absolutely terrible idea. The first priority always has to be making sure your business survives. You’re doing a disservice to your investors and employees.

I guess it’s kind of sweet and innocent to have such faith that a group of disparate people would act against their own self interest for only a nebulous future “common good” outcome, and that would be sparked by a comment on an internet forum.

Makes me feel kind of jaded to be honest. But maybe that’s the problem with society. Maybe we all just need to band together and not be swallowed by despair. Screw it - I also pledge to not withdraw any of my 0$ from SVB.

How sweet of you, Brian.

I pledge to not take out another loan.

I wouldn't share my company name in this context.

Oh wow, I only saw the [redacted] version. Probably for the best.

it's trivial to figure out the company from his username + bio though..

this comment will be legendary.

This did not age well.

RIP

pinkwojakscreaming.png

And you people think socialists are naive? You should probably delete the company name, for your own good.

I work at a bank most people are trying to park their funds at. It is a fucking PANIC mode disaster for them. Large companies in the Valley are trying to dump 100's of millions into our accounts

Can you explain, with a focus on how banks and money movements work, why this is a disaster? I'd assume this would be Christmas--Best day of the year, for a bank accepting migrating customers!

We have to do due diligence checks even if its an established company dumping 100 mill on us. Suddenly 100's of startups are coming and overwhelming our compliance team.

I'm more strongly affected than I thought I would be, as all the giggling and schadenfreude is distracting me from my work.

We're under the FDIC threshold in our account at the moment, so we are just riding it out expecting to get fully recouped in case of bank insolvency. We're looking into additional lines of credit for the short-term in case we're locked out of our funds for an excessive length of time.

It sounds like it's too late to withdraw anyways, so all their customers can do at this point is exercise an emergency plan and line up options for short-term liquidity.

Every single founder I know in Brazil who has an SVB account has either withdrawn their funds or is attempting to open another account with a different bank to do so completely.

No plans to move money out. But definite plans to create a new, additional account elsewhere and when payment for current orders in process comes in over the next 30 to 60 days, have those new funds go into the new account. (Basically, diversifying is good, and I shoulda/woulda/coulda done it sooner, but it was never my top priority... until now.)

This didn't age well. So... Definite plans now to move 100% of my money out. Thankfully, I'm within FDIC limits.

Odds are the San Francisco Fed has been working overtime since last night and announce SVB is bought out by another bank this weekend.

CNBC this morning has had a few chirons implying private capitalization/sales talks have failed

edit: maybe just the raise, and sales talks continue? https://www.cnbc.com/2023/03/10/silicon-valley-bank-financia...

CNBC is not a reliable source for anything except fear mongering

They aren't the only ones reporting on this.

Can we stop for a second and comment on how tailoring a bank to startups is a bad idea?

You don’t get any exposure to any of their potential hyper-growth in the form of debt/equity.

All you get is the deposits but they also don’t grow, the total just becomes concentrated in the accounts of the few survivors while all the other accounts go to zero as most startups die.

It is an excellent customer base for a bank. Startups are going to burn at a fairly moderate rate, such that you have a fairly good idea of the cash flows you would face in the normal course of business - it wouldn't take the most advanced Ai in the world to know for every startup on your books what their cash flow out will look like for the next 12-24 months.

By also being tied into the valley and the big VCs you have a fairly consistent stream of new accounts and large deposits throughout the year.

I am not sold on deposits rising overall because startups die a lot and the few homeruns will quickly dump you for Morgan Stanley or JPM as soon as they make it big.

But even if deposits rise how are you going to propel the money multiplier considering that your customer base doesn’t need loans?

Startups are notoriously scared of any debt/loan

It is a great idea in a 0% interest world, SVB's stock price went from $24 in 2010 to $710 in 2020.

Banks are tech companies now?

Add them to the list lol

I have about $1800 in it as I was forced to open an account with them for Stripe atlas. It was a bit more but I think they deduct $25 / mo for the past 3 years. Not really using it since Stripe started in India recently.

From what I understand since my amount is low I don't have to really do anything. Is that correct? Any advice for me?

I think that the bank gets rescued, probably very soon, the next few days.

To let it fail will harm a significant portion of the US startup community and damage the country's ability to continue to innovate. In many ways, it is too big to fail because of its ties to the startup community.

I think there is no other solution right now be a federal rescue of SVB. It is likely insolvent right now if they had to sell their assets at firesafes prices. An orderly unwind would help all involved and preserve a lot of value.

A federal rescue is fine by me, as long as the government turns a profit (like TARP), and the investors/management get clobbered before anyone else. Otherwise we are just encouraging more bad behavior.

I'm SVB adjacent and all my employee stock purchase investments are under water, and they weren't a few weeks ago.

Stripe Atlas has supported SVB accounts for a while. I believe it may have been the only bank account supported at the beginning, but regardless, I suspect there are a lot of Atlas companies backed by SVB accounts.

Only for C-Corps, LLCs created with Atlas never used SVB.

Oh man, nobody should ever use Stripe Atlas.

I'm interested to hear why?

I've seen Atlas get some flack from people who expected it to be an all-in-one business product, and then got bitten when it turns out there are more responsibilities/costs/etc that come along with running a business. I think if you take it as an automation product it's fine.

Not sure if this is what was being referred to above though.

I own put options that I bought yesterday at market open. It's not affecting my startup, but it's affecting my portfolio and I'm not happy that I can't sell those options.

Why can't you sell them?

Edit: I'm realizing now that you probably meant you have put options on other companies through an SVB account that you can't access because of account issues, not that you have puts on SVB, which was my initial read.

No, I own put options on SIVB itself.

Trading was halted in premarket and has yet to reopen. Honestly, it's disgusting. The amount of profit I would have made would be more than life-changing at a time when I could really use the money.

TBH, if you're knowledgeable enough to be playing with puts, you should know that banks don't act like other equities in cases of extremity. It may be a bummer in the individual case, but it keeps the money machine working for society as a whole.

Honestly, that's a fair point (playing with puts) - and yeah, I know that if trading was resumed SIVB shares would drop to $0 or close to it, which would probably trigger a much larger collapse because lots of banks had exposure to SIVB.

Thing is though, that's the whole point of banking stress tests and also why the Fed should have raised rates much sooner after COVID.

On a side note, the fact that VCs were giving out tons of money to lots of companies at crazy valuation multiples, that had no reason to exist, much less take in millions of investment...is definitely part of this whole mess. Banks and VCs need to do a lot more due diligence before just giving out money.

On that - interest rates need to be reasonable to make sure people who want to save their money get an appropriate return. 0% or near-0% is just financially irresponsible to those of us who remember getting 5-10% annually in our savings accounts.

I agree with you entirely on all points. It is a bad situation.

Ah, hadn't seen that trading was halted.

So... what happens now? It would seem that the obvious thing is you'd make a boatload of money, but will you be prevented from ever collecting that if the stock doesn't trade again?

"It's a big club, and you ain't in it!" - George Carlin

I read them as puts on SVB, but he can't sell them because they halted trading on SVB.

This ^. I bought puts yesterday at open, wanted to sell them today.

Ring your broker. You can probably still execute the puts and you'll be short.

Then you have to borrow the stock and you are short a stock that you cant buy back because trading is halted - it could reopen at 2x the current price.

Better to wait for the trading halt to be lifted, naked puts are the best way to express a short position here.

I'm guessing the puts expire today, maybe this afternoon we'll know more.

my puts expire next week, on the 17th

You should be good then. You should be able to buy the stock for pennies on the OTC market. Congrats!

Since yesterday afternoon, I’m unable to log in to the website and the mobile app is down. I haven’t had to make any transfers yet, but I’m hoping and expecting that will still work.

I'm sorry... when did hackernews became SVB news?

90% of my feed since yesterday contains the word SVB from hackernews.

Is this some kind of US thing? Can we just move on to other things?

HackerNews is a service by and for the venture capital company Ycombinator. 30% of Ycombinator backed startups use SVB bank, most of them to run their payroll.

So no we can't move on. The livelihoods of the people who this site was made by and for are at stake. They aren't even getting their paychecks this week. The entire venture capital and tech startup industries are immensely affected.

they never returned my calls as a self funded startup so fuck them

they are trying to raise money? that’s cute, maybe they can create a pitch deck and be ridiculed a million times just like all of us

“you need a team” “come back when you have revenue” “we need to see more revenue” “that market is too small” etc

but you know what? they got buddies and you don’t as a founder

Well, "fuck them" is not "fuck the bank"-- the bank is just a ghostly outline of all the other people's money they contain. So really, you're saying "fuck you other people!" -- maybe that's not your intent! If so, think carefully before you reply next time! :) ;p xx ;p

Why hasn't SVB offered to split people's accounts into multiple accounts capped at $250K each? This would be a win for everyone, correct? The cash is guaranteed, companies don't need to waste their time migrating a new bank, and SVB doesn't have to worry about their fractional reserve.

IIRC, that's not how the FDIC capping works. It's a unique((account_owner, account_type)) operation, not just by total number of accounts. The "account_owner" can get a little creative, but by and large, just splitting accounts won't work.

FDIC convers a single person per account type up to 250k, not per account.

If it were easy to get around the rule, why have a limit at all?

Folks who de-risk by staying within the FDIC limit do it by splitting their money between multiple financial institutions.

Insurance is per depositor, not per account number.

That would be a "hack" akin to inventing money or creating endless liabilities for FDIC. That's obviously--to me--not how this is going to work! :) xx ;p

Investor here (trying to buy into SVB), but I don't currently own anything, nor do I have any current accounts with SVB.

Everything I can see about them is completely overblown. Short and sweet version of research so far:

- They had sold their bond portfolio for 1.8B loss (originally 21B, this is 8.5% loss)

- They decided to raise money to match that loss (news release on 3/8/23)

- Headlines are confusing people with "can't sell" referring to the 3/8 attempt at capital raise, but now people think SVB is trying to sell

- Their Total Equity is around 13B (last balance sheet) -- that means if they completely dissolved and paid off all debts they would still have 13B on the balance sheet. Market Cap EOD 3/9 was 6.5B -- half of their actual asset value

- If they go into cash insolvency and get bought out, they will likely have to sell those illiquid assets at a discount (let's estimate a 40% discount) - it's still worth 6.8B.

Y'all SVB has been through this before, both in .COM and and '08. Also, to be clear -- I do not own any stock (but I want to)

Well, I was wrong: https://www.fdic.gov/news/press-releases/2023/pr23016.html

You dodged a bullet. Definitely find out what assumptions you made that were wrong, that could be a very costly mistake in the future. Betting against market headwinds that are blowing strong is always very risky, even when you are correct since sheer momentum can kill an investment.

I was looking at buying in with 1/60th or less of my portfolio (I'm a focused investor, most of my investments are 1/10th of my portfolio) so it would have been a small bet, I was acknowledging this as risky.

I'm still not confident I was 100% wrong -- in my scenario I labeled above included the fact they could go under (I didn't think they would go under), but now that their assets being are being sold, it will depend on how deep of a discount FDIC sells for.

If it's in 40%, there's a good chance that investors will still get money back (I believe).

If it's 80%, they won't get it all back.

You're mistaking assets and equity. A 40% discount in asset value absolutely would wipe out shareholders. To be a bit blunt, given your thesis here I would advise against trading in individual stocks, at least in the banking sector.

In general I agree that banking sector is definitely not strongly in my circle of competence, but on my only long-term bank I'm in I've made 100+% ROI within a couple of years. That could certainly be luck. To give advise on what I should do investing seems a bit premature with no more information -- even on banking stocks.

I did make a mistake in previous comment and used the word assets instead of Total Equity. The same principle applies -- FDIC will sell their assets, likely at a discount.

Depending on the discount of those assets will determine how much total equity they have. Currently, their assets over liabilities is large, so there would have to be significant underselling of assets.

My original thesis made it clear I was talking about 40% discount on their equity, I didn't make it clear in the subsequent thread.

I.e. if bought at the last price ($40) their assets priced them in some range between $150-220/share (if they were sold off). So they would have to have a significant discount to their assets in the last 2 months since they reported to lose that much.

In my book and using Graham's term, I was valuing this as a cigar-butt company.

You keep referring to this 40% number and calling it a "significant discount", when in actuality it's only a 7-8% decrease in asset value that would be needed to wipe out shareholders ($211B assets vs $195B liabilities on their latest balance sheet). In your original comment you mention the bank selling assets at a 8.5% discount as a point _in favor_ of your thesis. You seem to not only be missing the contradiction there, but also making a vaguely optimistic case for investors getting money back in an asset firesale.

I don't mean to dunk here, I just get nervous seeing someone propose a super-high-variance trade that goes empirically wrong an hour later, and then quote Benjamin Graham. As the responder above said, given the size of the dodged bullet you should really be updating your priors on investing strategy, but you seem to barely even regard your thesis as mistaken.

The 40% number was the calculation I did off Total Equity.

I accidentally mentioned a discount to assets once, but that was it. I did mention the 7-8% off some of their assets. It is in favor of my thesis because the valuation included that and was still far below the value with the 8% included in it.

It didn't go empirically wrong an hour later -- that is factually false. What happened an hour late is the bank went under -- but that doesn't mean investors don't get their money back (and Benjamin Graham did exactly this, and I'm not trite about my research or reading a quote here and there). He did it with 100+ companies at once after the great depression, many of them didn't end up making him any money, some did, many were about net neutral or small declines after they "failed". Again, you seem to be missing that the outcome was incorporated in my original thesis, but the price dropped significantly lower.

"The size of the dodged bullet" -- is a terrible, exaggerated hyperbole. A bullet would be if I was recommending a trade that would make me blow up, or 100% of my trade. I didn't recommend a trade at all (for one), I mentioned that I was hoping to get into it, and with the portion size, even if it came out to nothing, would be nothing close to a bullet.

While I do think I've updated my priors, it's very unclear what you think I should be updating? Again -- the part that I was wrong about was accounted for in both directions in the investment thesis. I was okay with it surviving or going under, I thought it would survive. I was very wrong in that belief that it would survive, but I was okay with it not surviving.

I could be wrong about any money being returned to shareholders -- which is accounted for in the sizing of the bet I had hoped to place. In the long run, I think that the learning opportunity I would get for 1/60 of my current portfolio and being invested in a class action lawsuit to regain money from a bank in this scenario still outweighs the actual money if it did drop to 0.

Well this is one of the wilder comment threads I've been a part of. Good luck with your investing.

Yes but you were very confident in everything you said that was wrong, so I guess that's all that matters

I think I only said one wrong thing -- that they would last through this. The rest is factual (still is), I'm not positive that having bought a chunk wouldn't have a positive result (see other comment)

> - Their Total Equity is around 13B (last balance sheet) -- that means if they completely dissolved and paid off all debts they would still have 13B on the balance sheet. Market Cap EOD 3/9 was 6.5B -- half of their actual asset value

They haven't written down all their bonds yet or seen what they could actually get for them. They only sold the AFS ones, they still have $117 billion in other securities.

Yep -- so if they lost 8% on their other bets, that was still accounted for in my valuation. Even if they lost up to 40% in their other bets (as other comments show).

Wonder if anybody had seen it coming? And is about to do the next big short.

Personally, I don't think there's a real problem unless everyone panics.

Banks are well-regulated and stable and have been for decades. That said, my investors & cofounder have both expressed gratitude that our startup banks with Mercury and not SVB.

> Personally, I don't think there's a real problem unless everyone panics.

And everyone is panicking.

Your words are almost the same as what the CEO of SVB said, and then immediately the VCs panicked, telling their portfolio companies to withdraw from SVB.

Technically, you are not “banking” with Mercury:

> Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust®; Members FDIC.

On that note, what's the deal with Evolve? I've seen them being the banking service provider for quite a few fintech companies already like Transferwise and BlockFi and else?

Mercury has partner banks though, so you are still banking, just through an intermediary. The banks still hold the funds. (Depending on the product you use).

I was obviously very wrong. I've never had an HN comment age so poorly, so fast.

NB: Life lesson here is that a pretty reliable indicator of a crisis situation is when you keep mis-assessing the situation. The ground truth is either changing far faster than you can keep up with it, or conditions are well outside any of your expectations or experience. Or that the story / narrative / signals simply aren't coherent or consistent.

This is something I've noted in a number of different situations --- not just business or financial situations, though those would be among them.

Whilst banks may have lots of regulations (depending on their country of operation), banks do fail reasonably regularly. For example this list of US bank failures https://en.wikipedia.org/wiki/List_of_largest_U.S._bank_fail...

This seems to reinforce the 'don't panic' aspect though -- depositors have never lost FDIC insured funds in the ~90 years it's been operating. And none of the depositors in the list of failed US banks lost a penny either.

Almost all banks on that list failed during the aftermath of Black Monday (1987) or during the Great Financial Crisis (2007-2010).

Yep banks that took on excessive risk in times of expansion.... And as SVB has failed today as has Silvergate recently, it seems we are looking at some level of issue.

What do you mean, there isn't a real problem? It's already been shut down.

Everyone panicked yesterday.

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