Silicon Valley Bank paid out bonuses hours before seizure
axios.com
axios.com
> What to know: The bonuses were for work done during 2022, and were previously scheduled to be disbursed on March 10. That date ultimately coincided with the bank's takeover by the Federal Deposit Insurance Corporation.
Furthermore, bonuses that were scheduled later in the month weren't paid out:
> Bonuses for employees in some other countries were scheduled for later in the month, so those haven't yet been paid.
So while the headline sounds bad and is likely going to generate outrage, this really just reads like normal payroll processing was happening on schedule.
Note that payroll would have been coming out of a completely different bucket (e.g. not from customer reserves) and would have been submitted for processing prior to March 10th in order to be disbursed on March 10th. Also note that bonuses are an integral part of compensation, so withholding already-earned compensation from regular employees (the majority of which had nothing to do with the collapse issues) is an unreasonably punitive idea.
So basically, the timing was coincidence unless someone can come up with some weird evidence that bankers delayed the collapse just long enough to get their bonuses, which seems far fetched. The collapse was triggered when they ran out of liquidity due to customer actions, which they couldn't have prevented.
There's a similar outrage-bait story circulating about executives selling stock prior to the collapse, but that was also pre-scheduled sales that were planned long in advance.
Despite the guy on Twitter calling the SVB issues in January, and arguably long term mismanagement that led to the downfall, the actual issues happened rapidly, over a matter of days.
These just didn't happen on the same time scale, and bonuses can't be undone in a matter of days with employees expecting them and even contracts demanding them.
There's a lot of reasonable takes on this whole terrible situation, but implying or suggesting that the bonus payouts were part of it or that employees are to blame for taking them is a terrible take.
It does not seem unreasonable that SVB employee bonuses for "great job done in 2022" should have been delayed given the clear evidence on Thursday that the bank was imploding.
In jobs like this bonuses are also not just "great job" money, they're a predictable part of compensation that people depend on.
A predictable part of compensation is being paid your regular wage on time and for many clients of SVB this is probably not possible this week coming.
They should have halted the bonuses.
Every payroll processor worth their salt has a big red abort button. Worst case: funds hit flagged and are then reversed.
However almost every bonus is not a CXO bonus, and I think clawing those back would be the wrong decision, and could be quite harmful to many.
I got my bonus for 2022 paid out on March 3rd. Everyone in my company knew the bonus payout date months ago.
Those contracts are with a company that doesn’t exist anymore… so I’m not sure that’s a good argument.
I get that this is part of the compensation that people rely on (I’ve seen Christmas Vacation), but it’s a really bad look. Paying out bonuses right before your company is taken over by the Feds is a horrible PR image. Regardless of if it is the right thing to do or not.
the company existed when the payment was made though, so why would your comment anything at the time of the payouts?
Banks are supposed to be one of the bedrocks upon which the economy rests and they are given certain privileges (like access to low interest rates ordinary people cannot get) as part of that role. Its clear the financial sector needs to have an extremely close eye on it to not cause all sorts of destruction across the economy, which it still manages to do pretty regularly out of a fun mix of short-termism, stupidity, and greed.
So from a signaling perspective, if the org is sitting on a lot of risk and employees may have benefitted during the accrual of that risk, shouldn't they also face consequences? Wouldn't that cause each employee in a bank to pay some more attention to the fundamentals of the org, to put pressure on any situation where large risk accrual happens? Wouldn't that cause the internal structure of banks to change so that more eyes were on these large risk accrual moments, because talented people wouldn't join unless they knew their livelihoods weren't at risk by one bad decision? Regulations can't be the only form of pressure for banks to not fuck up.
Somehow, it's always unrealistic, and somehow, these scenarios always repeat.
> it's a tiny fraction of the money,
No, allowing people to steal is a moral hazard no matter how much money it is.
Suppose I steal a $1000 TV from WalMart, and use the argument that this is a tiny fraction of their profits. No one would buy that.
So why should we buy that when it's orders of magnitude more money?
HR, especially in places where they don’t talk to treasury, may have the power to request for payments to be made but they aren’t likely to have the ability to approve or authorize payments.
SVB chose to invest in 10-year duration MBS that was yielding only 1.5% when higher rates were known to be just around the corner. The risk/reward in no way made sense.
Simple incompetence and/or greed.
Exactly.
Only withdrawals by account holders, regular bank employee salaries, and corporate salaries depending on the bank can be undone in a matter of minutes. Never executive bonuses.
/s
If the executives running payroll knew there was material risk of insolvency, this is fraudulent conveyance and could (and should) be flawed back. Those employees’ claims then go into the stack with other creditors.
That said, the FDIC probably signed off on this because what will zero the value of the franchise is every employee who earned a bonus jumping ship over the weekend.
What was it that judge said? If they were to go to prison it might affect them negatively.
I mean, who works harder and needs the money more, a finance executive waiting for their bonus, or a single mother of two working two jobs, one of which happened to be in a company depending on this bank for its salary payments?
Obvioysly the former!
Really is a bunch of oblivious neolibs in here.
And she'd be much better off than the single mothers not working there, but depending on the bank for ther salaries, even without a bonus!
I should feel bad for someone who, for the sake of extra money, willingly chooses to have their soul crushed every year, if they don't get a bonus this year?
Sure, but I feel bad for them for completely different reasons.
Do you know what the money is for or why they are sacrificing for it? Of course not, you just want to sound high and mighty
This is why organizations like SVB need to fail without any kind of bailout and executives need to go to prison for paying out bonuses if they paid them out knowing they couldn’t meet their fiduciary responsibility to customers.
Unless you believe nearly every employee at SVB down to the entry level is in some way responsible for this, then complaining about bonuses doesn't make any sense.
For the record, I don't think they should be bailed out.
the business of a bank is to make money. If serving the customers make them money, it will happen. If there's some other activity which makes even more money, that activity would be done instead (or as well as).
Does the farmer that grow your food also exist solely to serve you food?
If the roles were reversed and a tech company had delayed bonuses due to internal financial troubles, the pitchforks would be out against the company.
The article explains that this was really just normal, scheduled payroll processing. It just happened that bonuses were scheduled on the March 10th payroll, which had been scheduled ahead of time.
Basically, they were operating as usual and paying out the money owed to employees as they agreed to doing. They were operating like normal right up until they were taken over.
Withholding employee's earned and scheduled compensation wouldn't have kept the bank liquid.
They were operating like normal right up until they were taken over.
Harsh civil penalties for the decision-makers do seem appropriate though.
The problem I might have, and I guess many others, is the incompetence of SVB executives and the board of directors, in relation to how they (didn't) handle this particular risk.
If employee comp (yearly and even historic bonuses) was tied to the bank's catastrophic risk levels, I bet you'd see banks restructure their operations to curtail these kinds of catastrophic risk factors. Smart people wouldn't join banks where they didn't have a say in that. Instead, we get short-termism where the longest timeframe people care about is 'this years bonus'. Banking is too important to be that stupid.
Okay.
> [FDIC offered] The employees would be compensated 1.5x times their normal salaries, while hourly workers would receive 2x their normal wages for overtime.
Wow. Failure really does pay :)
EDIT: I understand this is absolutely the best move by the FDIC.
At the same time, failure really does pay. Just the reality.
Remember, this is a short-term gig and there is no guarantee that there will be a job for them after this has all played out. As an incentive to keep the existing people around, they need a carrot to keep them from getting a new (more stable) job.
So your statement is true about SVB paying its employees. But it's equally true about SVB doing wire transfer for its customers.
When SVB 'sends' money to an account at another bank (whether that account belongs to a startup or to an SVB employee), SVB tells the other bank the amount and the account number. The other bank debits SVB's account at that bank for that amount. The funds don't 'come from' deposits (which are liabilities) but from balances SVB holds at other banks.