Peers not lining up to buy Silicon Valley Bank’s problems. Neither are the giants.
Peers not lining up to buy Silicon Valley Bank’s problems. Neither are the giants.
After the Federal Deposit Insurance Corp. stepped in to cover all depositors at Silicon Valley Bank, the next question became who will buy it? The agency failed to broker a deal before the stock market opened Monday, and much of that failure is due to the initial exclusion of big banks from the auction.
Liz Hoffman is the business and finance editor at Semafor and author of the recently released book “Crash Landing: The Inside Story of How the World’s Biggest Companies Survived an Economy on the Brink.” She recently wrote about how the FDIC was approaching the sale of SVB. “Marketplace” host Kai Ryssdal spoke with Hoffman about who the FDIC hoped would buy the bank and the complexities of a sale.
The following is an edited transcript of their conversation.
Kai Ryssdal: So we’ve got the FDIC insurance over the weekend, we got the new lending facility in case of emergency over the weekend, we did not get a sale of SVB. And I want to know why.
Liz Hoffman: You know, what we reported was that the biggest banks — the ones that everyone loves to hate, but also the ones that are really the only people in a position to do something like this — were not invited in until it was effectively too late to get a deal done by Monday, which is when the market was expecting it. So, you know, I think that is now being rectified. They’re trying to sell this thing again. And I would expect bigger banks to sort of be more encouraged to participate in that process.
Ryssdal: Why were they not allowed in the door the first time?
Hoffman: Look, you’ve heard “too big to fail.” People don’t like them, and in particular, the chairman of the FDIC [Martin Gruenberg] really doesn’t like them and doesn’t want them getting bigger. And he’s talked about that a lot in the last couple of years. So it was a political calculus that this was the moment to sort of take a stand on this issue.
Ryssdal: Do you suppose there’s a downside for [JPMorgan Chase CEO] Jamie Dimon at all, to not want to be into finishing this deal?
Hoffman: I don’t think there’s a lot of appetite among the big guys to do this. First of all, Jamie has said publicly that he wouldn’t do Washington Mutual and Bear Stearns again, and it wasn’t worth it to him. And I think the lessons of 2008 are going to make people pretty reluctant unless it’s basically free.
Ryssdal: By that you mean, you know, the government would provide some sort of risk assurance, right?
Hoffman: Yeah. There’s a $15 billion hole in that company, and it’s got to be filled by somebody. And I don’t think there’s a lot of appetite for big-bank CEOs to have it be them.
Ryssdal: I want to touch on something else you wrote about in this piece where you laid out sort of what’s going on with the acquisition. You are not sanguine about the fate of regional banks in this economy, and I want you to explain why.
Hoffman: So, what the [Federal Reserve] did over the weekend — what they didn’t do is they didn’t say, “We’re going to end this run.” They said, “We will fund it.” So, these banks are now vehicles for us — the Fed — to put money in the pockets of very panicked depositors. The problem is that the funding that they are offering is way more expensive than the funding that it’s replacing. So, you’re going to end up with these banks that are smaller, much less profitable, trading at steep discounts, and they’re going to end up getting picked off. So, you’re going to end up having this fight about bank M&A one way or another and “too big to fail.”
Ryssdal: So back to the bank M&A. Do you think the SVB deal gets done somehow?
Hoffman: Well, so there’s three pieces of Silicon Valley Bank. There are the deposits, which are being insured; there are the loans, some of which are very good, some of which are probably a little dicey; and then there’s the investment portfolio, and that is really problematic because that has a huge hole in it. So the FDIC may say, “All right, we will hold on to that. We will run it down over time.” It’s mostly Treasury bonds and Fannie and Freddie debt mortgages — that kind of thing. And, “We will match the deposits with the loans and sell that to somebody.” That’s got to go to a bank. So, the cleanest solution, and the one that regulators are now hoping for — though they shot themselves in the foot over the weekend — is for a medium-sized bank to step up.
Ryssdal: But I mean, SVB, as everybody has heard a zillion times, was the 16th biggest bank in this economy. And you’re gonna tell me some medium bank is gonna come in here and go, “Yeah, all right. We’ll do this”?
Hoffman: Well, there’s nine banks. There are seven, there are seven through 16, right, before you get to the really big five or six. You have PNC — my understanding is they ultimately were not interested. You have Truist. You have U.S. Bank. But you know, a lot of these banks themselves are facing the same problem, albeit not at the scale that Silicon Valley Bank was. But these guys are in the business of taking deposits and buying things with them. So, there’s a lot of this stuff out there. And the second you have to be, you have to mark it at its true value, whether by having to sell it or by selling the firm itself, there’s some accounting math that puts that underwater really quickly.
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