Bankrupt Banks

[Bogeyman]

The FDIC’s Sweetheart Bank Deal for SVB​

It’s good to be a banker at the remainder counter, especially when the feds are helping with the purchase. First Citizens BancShares on Sunday night was the lucky winner of the bidding to buy the assets of Silicon Valley Bank, and what a deal it is. Rather than minimize the cost to the deposit insurance fund as required by law, the Federal Deposit Insurance Corp. seems to have chosen the best political match.

North Carolina-based First Citizens will acquire all of SVB’s deposits, loans and branches but leave $90 billion in securities and other assets with the FDIC. First Citizens will buy SVB’s $72 billion in loans at a sizable $16.5 billion discount and share future losses or gains with the FDIC. How sweet it is for First Citizens, whose shares rose 45.5% Monday.


The FDIC loss-share agreement is a tacit recognition that SVB’s large book of loans to unprofitable startups carries substantial credit risk. SVB’s business model involved extending low-cost credit to tech startups, many with no revenue, and getting repaid when they were acquired by larger companies, raised more private funds or floated shares publicly.
Problem is, rising interest rates have caused venture funding and the market for initial public offerings to dry up. Market valuations for startups have slumped. Bigger companies aren’t in the market to buy startups with large amounts of debt relative to revenue. That means big loan losses could be coming.

Hedge funds might have been interested in buying SVB’s loans, but the FDIC ruled them out for political reasons. Progressives dislike hedgies, and Silicon Valley venture investors worried they would be less forgiving of startups that couldn’t repay their debt. SVB often accommodated struggling startups at the request of their venture-capital financiers.

The FDIC says the deal will “minimize disruptions” for SVB borrowers. First Citizens stressed it is “committed to building on and preserving the strong relationships” with venture and private equity firms. CEO Frank Holding Jr. added that “together, with the legacy SVB team, we are well positioned to understand the unique financial needs of [the tech] sector.”

They sure are thanks to FDIC assistance, but all this suggests that the FDIC hardly minimized its own risks and costs. In addition to the loss-share agreement, the FDIC will finance the deal with a five-year $35 billion loan plus a $70 billion line of credit to cover potential deposit flight. This is a government match made in heaven.

After the deal closes, First Citizens will have $219 billion in assets—double what it had at the end of last year. This would make it among the 25 largest banks in the U.S. and puts it on the cusp of being classified as too-big-to-fail. The losers in this sweetheart deal will be other banks (and their customers) that will have to pick up the estimated $20 billion cost to replenish the deposit insurance fund. That’s about 15% of the entire fund. By comparison, the 214 bank failures between 2011 and 2022 cost the fund $12.4 billion.

The FDIC might have been able to shut down and sell SVB at a smaller loss had it accepted offers that we were told were floated over the first weekend after its collapse. But Chairman Martin Gruenberg rejected them out of hostility to consolidation as per the warnings from Sen. Elizabeth Warren and her protege on the FDIC board, Rohit Chopra. Now we end up with consolidation anyway at a greater cost to the deposit-insurance fund.

The FDIC is supposed to be an apolitical regulator that makes judgments based on the best interests of taxpayers and insured depositors. The SVB transaction raises questions about whether political ideology is compromising basic financial competence at the FDIC. This isn’t the right message to send in a bank panic.

Opinion | The FDIC’s Sweetheart Bank Deal for SVB

First Citizens scores a great deal, while the deposit insurance fund takes a $20 billion hit.

www.wsj.com

 

[Bogeyman]

1 trillion euro risk warning from the European Central Bank

The European Central Bank (ECB) has warned that financial stability could be jeopardized if too many investors withdraw money from funds investing in commercial real estate.

Experts from the European Central Bank (ECB) drew attention to the dangers to financial stability from the commercial real estate market in the Macroprudential bulletin titled "The increasing role of mutual funds in the Eurozone real estate markets: risks and factors" published on the bank's website.
HIGH INTEREST THREAT

In the bulletin, which states that commercial real estate funds currently hold 40 percent of commercial real estate in the Euro Zone, it was warned that the increasing refinancing problems in the real estate sector with the increase in interest rates may lead to exits in this area in Europe.

EUR 1.1 TRILLION RISK IN REAL ESTATE

Emphasizing that the net asset value of real estate mutual funds has more than tripled in the last 10 years, to over 1 trillion euros ($1.1 trillion), increasing their interdependence with the real estate markets, the funds are an asset because investors often have opportunities to withdraw money and assets are highly illiquid. an imbalance has been reported.

Emphasizing that this imbalance may make funds vulnerable to distressed sales at low prices due to liquidity pressure, the bulletin warned that this could further increase the pressure on the real estate market.

BANK IN USA EXAMPLE SHOWN

According to the ECB, instability in this area "could have a systemic impact" on commercial real estate, which could affect "the stability of the broader financial system" and the real economy.

ECB experts cited in the bulletin the Blackstone Real Estate Income Trust (Breit) fund in the US, which had to limit its repayments because too many investors pulled in too soon, helping the funds better manage surges in liquidity demand and internalize redemption costs that may arise during market stress. He stated that rules should be developed to help.

It was noteworthy that the ECB's warning came after the European Systemic Risk Board (ESRB) warned in January that the European Union and member states should improve their surveillance for systemic threats posed by the commercial real estate market.

The growing role of investment funds in euro area real estate markets: risks and policy considerations

The European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. Our main task is to maintain price stability in the euro area and so preserve the purchasing power of the single currency.

www.ecb.europa.eu

 

[Bogeyman]

With the outbreak of the banking crisis in the USA, in March, the second largest bank failure in the history of the USA, 389 billion dollars deposit outflow was experienced from US banks.

Biggest cash outflow in history in a month

https://twitter.com/i/web/status/1643288991611904001

 

[Bogeyman]

Credit Suisse rescue package rejected by Swiss parliament​

Switzerland's parliament on Wednesday rejected a Credit Suisse rescue package that included 109 billion Swiss francs ($120.87 billion)in financial guarantees in a largely symbolic vote as the government commitment, made using emergency law, can not be overturned.

Although parliament's upper house earlier on Wednesday retrospectively approved the measures, the lower house rejected them for the second time after already voting against them on Tuesday.

Credit Suisse rescue package rejected by Swiss parliament

Switzerland's parliament on Wednesday rejected a Credit Suisse rescue package that included 109 billion Swiss francs ($120.87 billion)in financial guarantees in a largely symbolic vote as the government commitment, made using emergency law, can not be overturned.

www.reuters.com

 

[Mehmed Ali]

I fully expect that Suisse government approve the plan to combat the corruption in Bantustans aka none western countries. Suisse was always a great example of the transparency and good book keeping. Even Suisse are so empowered that they can vote on the color of their building corridors. Above all else due to them we know sugar content in every bar of chocolate.
I must admit if Bosnia followed Switzerland we would have 20000 porn stars Great place


P of Sh

 

[Heartbang]

First Republic Bank closed by US regulators, JPMorgan to acquire assets​

Bank's shares dove 50% last Wednesday with sudden withdrawals amid weak first-quarter results surrounding US banking crisis​

The troubled First Republic Bank was closed by US regulators, while its assets are to be acquired by JPMorgan Chase, the Federal Deposit Insurance Corporation (FDIC) said Monday in a statement.

The US-based commercial and wealth management institution was closed Monday by the California Department of Financial Protection and Innovation, which appointed the FDIC as a receiver.

To protect depositors, the FDIC is entering into a purchase and assumption agreement with JPMorgan Chase Bank to assume all of the deposits and substantially all of the assets of First Republic Bank, it said.

First Republic Bank saw shares dive almost 50% last Wednesday with sudden withdrawals amid weak first-quarter results surrounding the US banking crisis.

The bank's total deposits stood at $104.5 billion in the first three months ending March 31, which was down from $176.4 billion recorded in the final three months of 2022.

It had approximately $229.1 billion in total assets and $103.9 billion in total deposits as of April 13.

President Joe Biden later said that the federal regulators' actions are keeping the US banking system "safe and sound."

"Let me be very clear, all depositors are being protected. Shareholders are losing their investments. And critically, taxpayers are not the ones that are on the hook," he told during his speech at the National Small Business Week event held at the White House.

He added that the regulators' actions also protect small businesses across the nation, which are required to continue ensuring payroll for their employees.

First Republic Bank closed by US regulators, JPMorgan to acquire assets

Bank's shares dove 50% last Wednesday with sudden withdrawals amid weak first-quarter results surrounding US banking crisis - Anadolu Ajansı

www.aa.com.tr

 

[Ryder]

Bigger banks are eating the small ones.

You know that will make things worse when the big banks explode.

Right bow the mentality is that they are too big to collapse.

 

[Bogeyman]

SVB Customers Who Lost Their Deposits Remain on the Hook for Loans​

Silicon Valley Bank’s customers in Asia whose deposits were recently seized by the Federal Deposit Insurance Corp. are in a bind for another reason: they still have loans outstanding—to First Citizens Bank FCNCB -0.44%decrease; red down pointing triangle.

When SVB SIVBQ -1.05%decrease; red down pointing triangle failed earlier this year, the FDIC stepped in to protect all of the California bank’s U.S. deposits and arranged a sale of the lender’s U.S. customer accounts, branches and loans to First Citizens Bancshares.

Left out of that deal was SVB’s branch in the Cayman Islands, which had deposits from the bank’s clients in China, Singapore and other parts of Asia, including venture-capital and private-equity firms with funds that domiciled in the British overseas territory. Those investment firms were stunned in late March when they found out their deposits weren’t protected, and the FDIC—acting as SVB’s receiver—had drained their bank accounts, The Wall Street Journal reported previously.

Some of those same venture-capital and private-equity funds had previously drawn on credit lines that were linked to their SVB deposit accounts. Their outstanding loans were among the assets that were sold to First Citizens, customers of the bank told the Journal.

The funds are now under pressure to repay those short-term loans, but the money that they had earmarked to repay the debt was in the Cayman bank accounts, the customers said.

The credit lines, which were known as capital-call credit facilities, were originally provided by SVB to many venture-capital and private-equity funds when their deposit accounts were set up.
Venture-capital and private-equity funds typically use the money they raise from their investors to buy stakes in companies. In practice, many funds first secure capital commitments from their investors and obtain the actual money later on.

The funds will often use the short-term loans from banks to start making investments. These cash advances can help the funds improve their returns, and the debt is paid down when the funds make capital calls, requiring their investors to remit the money they had earlier committed.

Some SVB customers told the Journal they have asked First Citizens if their loans can be set off with the deposits that the funds had in their Cayman bank accounts.

In response to a query from the Journal, a First Citizens spokeswoman said a setoff “isn’t legally possible in this situation” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former holding company of Silicon Valley Bank.
First Citizens has told some Asian funds that it is open to giving them more time to repay the debt, the customers said.

Last month, SVB’s Asian customers were separately informed that requests for additional credit-line increases will no longer be approved by First Citizens, according to a notice that was seen by the Journal.
“First Citizens did not retain a banking presence in Asia, which is the basis for the decision on credit line increases,” a spokeswoman for the Raleigh, N.C.-based bank said.

SVB’s Cayman branch is among the assets that were placed under receivership. The bank’s former parent, SVB Financial Group, filed for Chapter 11 bankruptcy in the U.S. in March, and recently disclosed that its securities business will be acquired in a management buyout.

Earlier on, SVB representatives had advised Asian investment firms with Cayman Islands-domiciled funds to set up their bank accounts in the territory instead of in the U.S., according to one customer of the bank.
The FDIC has told SVB’s Cayman depositors that they would be treated as general unsecured creditors, and said they can file claims with it by July 10. The receiver has up to 180 days to determine whether to allow the claims, according to a notice sent by one of SVB’s customers to its investors.

“They’re being squeezed both ways,” Joseph Lynyak, a former FDIC regulator, said of SVB customers who have lost their deposits but still have to repay their loans.

Lynyak, who is now a partner at law firm Dorsey & Whitney in Washington, D.C., said the FDIC technically retains the right to move the loans tied to SVB’s Cayman accounts back into receivership by purchasing the credit lines from First Citizens. That way, the FDIC could set off the loans with the customer deposits it has taken, he added.

“That’s a policy decision that the FDIC will have to decide on. They have the flexibility to do what they think is appropriate in those circumstances,” Lynyak said.


The FDIC declined to comment on the situation. Under a rule the agency adopted in 2013, deposits in foreign branches of U.S. banks aren’t considered deposits for purposes of the Federal Deposit Insurance Act, with few exceptions. A notice in the federal register that year said U.S. banks’ foreign-branch deposits had doubled since 2001 and totaled approximately $1 trillion at the time.

Neither the FDIC or the Cayman Islands Monetary Authority have said how much in deposits the SVB branch had at the time of its collapse. The bank’s 2022 annual report said SVB had $13.9 billion in foreign deposits as of year-end.

The Journal reported earlier that the Cayman Islands Monetary Authority has engaged lawyers to assess its legal options, and a government official recently told affected SVB depositors in Hong Kong that it is looking for ways to help them.

The British overseas territory doesn’t have an equivalent of U.S. federal deposit insurance, which officially covers up to $250,000 a bank account. The FDIC earlier estimated that SVB’s failure will cost a federal insurance fund it oversees about $20 billion, or roughly 10% of the bank’s assets before its failure.

WSJ News Exclusive | SVB Customers Who Lost Their Deposits Remain on the Hook for Loans

Customers of Silicon Valley Bank’s Cayman Islands branch who counted on using their deposits to repay credit lines are in a bind after the FDIC seized the funds.

www.wsj.com

 

[Heartbang]

For your consideration:

https://twitter.com/i/web/status/1671262303319392259

 

[Bogeyman]

https://twitter.com/i/web/status/1672140561296285696

 

[Bogeyman]

https://twitter.com/i/web/status/1685288048802590720