Roku filed an 8-K saying that of its $1.9B of cash, $487M is stuck at SVB(vikashruhil.medium.com) |
Roku filed an 8-K saying that of its $1.9B of cash, $487M is stuck at SVB(vikashruhil.medium.com) |
I wouldn't be surprised to see a run on banks in the next few days/weeks if additional rumors (true or not) come out.
Edit: didn't want to reply to everyone.
1. SVB probably thought they are in good shape, like every bank out there.
2. Even if the deposits are OK by early next week. Every banks/firms/funds will need to start reviewing their books and see what exposures they have. Even the slightest "issue" will trigger a bank run. Tolerance is really low at this point.
There are other financial institutions that are suffering. We could definitely see cascades among some of the weaker banks
It’s like that old quote about going bankrupt, first it happened slowly, then suddenly.
“ I want to assure you that Mercury is in a strong financial position (profitable and well-capitalized), and we have a number of ways that we keep deposits on Mercury safe:”
Uhoh.
Are they moving money from one bank to another, spreading money across banks to reduce single points of failure.
Maybe buying bonds, gold or other more secure investments? Roll the dice on crypt as if it does have a moment to shine this is it.
(seriously HN, we non-US people have never heard of your terms)
some hours ago
- Roku has 487M in SVB
- After the 8-K released, Roku lost 323M in market cap
Basically, the market is expecting around 30c of value recouped for every dollar inside of SVB.
(note: I know this analysis isn't perfect, but it gives a rough idea)
It's also very likely the market changes its mind shortly, especially if Roku lays out the plan and expected impact to operations in more detail.
Agree that the market might change its mind quickly, especially if estimated recoveries are projected to be high or the depositors completely made whole.
Given the much-discussed recently limits of depending on the FDIC, not putting all your eggs in one bank basket seems incredibly wise, guess now we just see how broadly exposed other businesses and other banks are.
The more money you have, the less competence you need - hardly a surprise, but... there are no shortage of articles that make it to HN with VCs talking up their own book about how great they are, so I think calling them out is fair.
EDIT: and it's also worth everyone reflecting on where their own money is, and how many things would have to fail before they can get it. If you are fortunate enough to have any significant-to-you amount of assets your rely on vs just living paycheck-to-paycheck or on credit cards... think about spreading that shit out.
New: It’s just some startups!
That's way too low.
The other thing this exposed is that FDIC protection for businesses is also too low.
One thing I came across to watch out for though is that if you hold fixed income securities (e.g. GICs) that are issued by the same bank as the brokerage account, then if it goes bust, the securities are NOT covered by insurance.
"CIPF does not cover: the insolvency or default of the company or organization that issued your security"
For example, if you hold a $500k GIC issued by TD Bank in a self directed TD brokerage account, and TD goes bust, then you're gonna have a bad day.
In Australia most trade accounts use 'Chess' system which basically means when they buy shares they buy them in the account holders name so you own them and if the broker collapses it's not a problem.
In US I believe they are generally owned in the brokers name but using 'SPIC' so you have $500k protection coverage similar to bank deposit protection.
I wonder if there is any money to be made shorting companies wrapped up in this mess.
Roku wasn't priced the way it was because of the cash on its balance sheet, it was/is priced on earnings, for example.
You are two days too late for that.
There's now at least one business bank the will purchase t-bills on a companies behalf with minimal transaction costs.
salaries
interest on debt
Bills
Lobbyists
Foreign companies that manufacture your hardware
Hedge currency from foreign sales and bills
All without a bank account?
Keep in mind they say this is 25% of their cash, clearly they invested the bulk of their short terms assets elsewhere .
Others are indeed disclosing that they have some holdings in SVB, such as Roblox at 5%: https://www.sec.gov/Archives/edgar/data/1315098/000110465923...
[1]: https://twitter.com/footnoted/status/1634302156303134720
Then I learned this was only 26% of its cash reserves.
I thought cash was considered wasteful because it loses value via inflation.
Has the thinking changed? Can someone knowledgeable please help me understand this?
The rest is then generally held in "cash equivalents" such as short-dated government bonds. The latter has yield to offset inflation. But basically "cash" is being used quite loosely here.
From the 8-K:
> The Company has total cash and cash equivalents of approximately $1.9 billion as of March 10, 2023. Approximately $487 million is held at SVB, which represents approximately 26% of the Company’s cash and cash equivalents balance as of March 10, 2023.
Wouldn't these bonds belong to Roku but simply be bought/sold/held, for a fee, by SVB?
I mean: my bank in Europe can go belly up, my stocks are my stocks and they'll be transferred to my new bank. They cannot be used as part of a bank "bail in" procedure (well at least I think and I hope that's the case).
Knowing that probably answers your other questions.
As of this writing (2023-03-10), there are already 10 or so filings today mentioning SVB.
Atom/RSS feed: https://www.sec.gov/cgi-bin/browse-edgar?action=getcurrent&C...
WOW they had how much money???
A much more believable hypothesis is that investors saw the headline, went "Roku is affected by SVB!!" and panic sold.
[1] https://corporatefinanceinstitute.com/resources/valuation/en...
It's a time-shift. That's all.
You can absolutely run an economy - and a culture - without leverage and even without debt.
In such an environment it will take multiple lifetimes to accumulate a single lifetimes worth of provision and security ... and we all decided we wanted to provide and secure within our own lifetimes.
... and then we decided we wanted that before we had grandchildren, and then before we even had children.
We're time-shifting and this instability (and, in many ways, incomprehensibility) is the price we pay for it.
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
[0] https://www.amazon.com/Mystery-Banking-Murray-N-Rothbard/dp/...
It is. Its what happens when a country's currency is used as the exclusive foreign exchange currency in international trade and that country can print money like a banana republic without that currency losing value. The US went apesh*t on the foreign exchange currency position of the dollar and not only printed $ from the Federal Reserve but also allowed quite high % ratios for private banks to do fractional reserve lending.
The legal % ratio was reduced after the 2008 crisis, but right at the end of Obama's 2nd term, they were restored to 2008 levels. So the cycle that started 2008 crash started again - not necessarily backed by high risk mortgages this time, but whatever could be used as a collateral.
Now that many countries are moving to trading in their own currencies, all the printed dollars are coming back to the US and hiking up inflation and causing all this mess.
So youre right. Its literally a scam. It could work if it was tightly regulated with low %es and what the banks could show as the backing asset could be very tightly regulated. But we all know what the corporate lobbies do to regulations in the US...
Most of the economy relies on an expectation that a service you provide now will be paid off in the next 30, 60, 90 days.
It's the system working as designed.
Most of that loaned out money is getting deposited into another bank account. And that deposited loan will (minus a percentage kept in reserve) get loaned out again. And so on, etc. I might be missing something important, though.
Yes, banks fail. However, the large, reputable ones fail few and far between. If you're a seed/Series A startup, you'd be much better off focusing on creating value. Your far more likely to fail to find PMF than you are to have your bank go belly up.
I do all my reading on kindle, that one is only print but I will aim to track down a digital version of their arguments.
This is a leveraged operating model. It’s risky and tanked many firms when the CP markets froze in ‘08.
That said, the bank can still lend out your assets within certain regulatory guidelines, but in theory the regulation is in place so that they always have enough liquidity should you choose to withdraw it. Issues only really come into play when large numbers of consumers try to withdraw in rapid succession and a bank doesn't have adequate liquidity available. Ie, a "bank run".
Your point on stocks is interesting though because it's quite possible your bank actually does loan out your stocks to short sellers and makes some yields some profit in doing so. My understanding is that there are scenarios where you can actually loose your stocks in the event your broker goes bankrupt, although in such a case your government should insure you up to a certain amount (like with cash deposits).
But in a worst case scenario you can lose your stocks and banks can definitely lend the assets you hold with them.
By the way, I'm not arguing against the Fed. I'm against fractional banking, or at least feel they should require banks to offset their liabilities more than they do today.
We're literally discussing an example of why the current system isn't good.
"Two ways," Mike said. "Gradually and then suddenly."
--Ernest Hemingway, The Sun Also Rises
(Spoiler: should have bought the inverse Cramer ETF…)
I mean, they are on a long enough timeline, but they tend to be able to stay irrational longer than you can remain liquid.
The bottom line is that not all deposited money is not readily available on short notice.
But seriously, the problem with SVB was that their assets are trash and everyone knew it. If their assets were actually worth what they claimed they would have no problems.
> The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country.
https://www.fdic.gov/about/what-we-do/index.html
(If anything, the US govt. and people receive more in taxes from the startup demographic and you should be looking at govt. corruption first if you are keen on saving taxpayer money.)
Most of us can think of a few big ones, and a handful of local ones.
Citizens Financial Group (16th) is also quite large but I would be shocked if someone didn’t know of Amex rather than did.
https://www.cato.org/commentary/fdic-invents-costly-solution...
Scope is a bit different.
https://en.m.wikipedia.org/wiki/Money_creation#Role_of_comme...
- new money, created by the loan; and
- a new, valuable asset — the house or restaurant — worth very roughly that amount of money.
But somebody had better be creating money in a growing economy. Otherwise the stock of desirable stuff will grow while the stock of money remains constant. And once that happens, people start hoarding money rather than doing the hard work of investing in new productive assets. But creating new productive assets is where the growth comes from, not to mention a big chunk of the jobs.
I doubt bank-created money is the only way to avoid deflation and depression. But it’s about the least centrally-controlled alternative I can think of.
They have a liability (their debt to me) and an asset (the thing they "bought", which could be anything from a T-bill, to a bagel). Basically, any debt "creates money."
When you "spend" money that you deposited with the bank, what you're actually doing is getting the money you lent to the bank paid off.
What's the difference between that and you lending money to someone to buy a bagel/T-bond, and then at some point in the future, getting money back so that you can buy a sandwich/car?
No. It moves it to someone else and creates a debt. It needs to be paid back.
Big banks are holding onto large, mostly unoccupied housing developments to create artificial scarcity and drive the prices up. Then they're selling with huge loans to buyers that are going to see value plummet and be unable to pay anything back.
I’m assuming you’re talking about the US. Do you have a source for this claim? There is a problem with vacant houses, but this is the first I’ve heard of the narrative of empty developments implying new houses.
A discussion of vacant housing: https://www.pewtrusts.org/en/research-and-analysis/blogs/sta...
I can't say I understand the whole economics of it, but it's obvious something sketchy is happening.
They simply have a longer date to maturity then is comfortable for the depositors withdrawal cadences, and they have had to be sold / marked down in a period of rising interest rates.
There are a lot of limits and thresholds like this that could use regular (or even extant) reindexing.
EDIT: it was increased to 250k in 2008 or 2010. As you note this is too low. It seems like it has been rather low its whole history. Given that our inflation rates are basically halving the currency every decade or so, it should be reindexed much more frequently (and also raised in any terms).
I lived through Washington Mutual going through FDIC receivership back in 2008 (I was their employee, shareholder and account holder at that time) and their stock price dropped to almost zero when the news broke about that. I'm curious why this is not the case here.
SIVB trading was halted during premarket at 8:35 EST due to pending news, and never resumed trading.
FDIC says they are.
After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13.
Of course, a credit card company having a bank attached is not very weird at all. I mean a bank sprouted out of GE that one time, which seems much less on-mission.
Off the top of my head, I guess the largest are:
* JPMorgan
* Goldman
* Wells Fargo
* BoA
Why the bail out comment though? FDIC doesn't run on govt money. So even if FDIC helps them out with amounts greater than 250k it won't come out of govt. money.
Of course if the government required FDIC to charter most retail banks, and you had to have a bank account to say not have all your cash stolen by crooked cops by the side of the road in civil forfeiture, then It'd look a lot more like a public good supported by an indirect tax on the return on your deposit. Which isn't far from the truth.
For stocks and things, you've got some options. For best protection, you would want to have your stock ownership registered on the books of the company; you might be able to make that happen with a full-frills brokerage, ask about holding stocks not 'in street name' or you might have to transact via the registered transfer agent. Expect that to result in paying comissions and hassle.
If you don't want to go that far, making sure you don't have a margin account is a good step. Brokerages generally have to maintain customer deposits and holdings separate from the brokerage's propriatary holdings, but not necessarily for customer's margin deposits. Anyway, one should always be careful with margin.
If a brokerage fails due to their own poor investments, it shouldn't impact your holdings. Of course, if they fail due to poor record keeping or fraud, your holdings may not actually exist. SIPC provides some insurance that may apply, but the limits aren't very high and there's not that many credible brokerages to spread your holdings among.
as a US citizen, personally i wouldn't put money in either system.