rick_moronis t1_jdvfbz1 wrote on March 27, 2023 at 2:17 PM

Does anyone notice how bad the SVB balance sheet is/must be? I feel like I'm taking crazy pills. Sure, this probably isn't too bad of a deal for FC, but it should say something about the wider banking sector and everyone's balance sheets. The amount the FDIC is getting stuck with is nuts.

First of all, the actual price is "Rights linked to the stock of First Citizens, which could be worth up to $500 million." So... very little at most, or maybe nothing at all. And we were told there were a lot of bidders that they needed to weed through? What, a bunch of $1 bids?!

Second, the FDIC is retaining $90 billion in assets? FC didn't even want half of the fucking assets on the balance sheet?

Third, "The deal for the bank...[included the purchase of about $72 billion in loans, at a discount of $16.5 billion....]". Uh... WHAT? and the other $90 billion was left behind? This was the 'good' $72 billion? Is that 77% off? This looks more and more like a bailout of FC to be honest. FDIC said "who needs the cash from SVB balance sheet? we can shift those deposits over to FC and stuff a hole in their balance sheet so we're not doing this again in North Carolina next week."

Fourth, the FDIC and FC share in losses from here 50/50 up to 5 billion, so the FDIC could still lose another 2.5 billion.

If the rest of the regional banks balance sheets look like this then God help us.

[deleted] t1_jdy2qsg wrote on March 28, 2023 at 12:56 AM

[removed]

memestockwatchlist t1_jdvi8ta wrote on March 27, 2023 at 2:38 PM

Maybe they didn't want the HTM assets that killed SVB?

rick_moronis t1_jdvoogb wrote on March 27, 2023 at 3:21 PM

There are non-hold to maturity, which are treasuries and MBS that are marked to market regularly. Then there are HTM assets which are also treasuries and MBS that they don't mark to market. Then there are loans that are by nature HTM unless the bank is unwound - which also happen to have the longest duration risk. My guess would be that they left behind $90 billion in loans written at 2.5% because it is a waste of capital to tie it to that income stream.

The way you compensate someone for the increase in rates since the contracts were written is to drop the price (price and yields inversely correlated). So the HTM assets would be handed off at a steep discount (if they were handed off at all) to compensate FC for the new rates. If kept on FC balance sheet, they will continue to gain/lose based on market rates. Alternatively, they can be sold immediately into the treasury/mbs market which just turns to cash and is put on the balance sheet (they would realize no loss, personally, from this sale because the FDIC already took the loss when re-sold to FC).