I’m curious about what the value of acquiring the customers would be. That said, it’d probably be less than you might think because of how clear it is that the customers aren’t well-balanced at all. I almost wonder if the acquisition would be more valuable if the bank was split so that it would be easier to balance them out.
Acquirer A acquires assets, non-deposit liabilities, and issues a new promissory note to Acquirer B to cover the current amount of deposits.
Acquirer B receives the promissory note from A and acquires the depositor liabilities (and the customer accounts to service).
Any new deposits are just liabilities of B, and B will match them with new assets.
Somehow, eventually, the promissory note gets paid down as the old assets mature or are sold by A, and B uses those payments to fill up a new asset book against the deposits.
Seems like it could work on paper?
That being said, the FDIC’s sole criterion for selecting a resolution plan is the option that minimizes payout from the FDIC insurance fund. Assuming they can get it done with one buyer by tonight with $0 from the insurance fund, they won’t look at any cleverer options.
On this point, you’ll likely be interested in the discussion in Wednesday’s Matt Levine. Excerpt:
The third thing you get, the franchise and relationships, looked great a year ago when the tech industry was booming. It looked pretty good a week ago, when the tech industry was slumping but still prominent and profitable. But I think that the story of SVB’s failure has turned out to be that SVB was the banker to tech startups, and tech startups turned out to be incredibly dangerous customers for a bank. 2 So any other bank will have to be careful about acquiring SVB’s customers, no matter how loyal they are promising to be now. You might ascribe a negative value to those relationships: “If I become the bank of venture capitalists, they will push me to do stuff that is not in my best interests, and I will be seduced or pressured and say yes, so the expected value of these relationships is negative.”
I’m curious about what the value of acquiring the customers would be. That said, it’d probably be less than you might think because of how clear it is that the customers aren’t well-balanced at all. I almost wonder if the acquisition would be more valuable if the bank was split so that it would be easier to balance them out.
Interesting. One could imagine this working by:
Acquirer A acquires assets, non-deposit liabilities, and issues a new promissory note to Acquirer B to cover the current amount of deposits.
Acquirer B receives the promissory note from A and acquires the depositor liabilities (and the customer accounts to service).
Any new deposits are just liabilities of B, and B will match them with new assets.
Somehow, eventually, the promissory note gets paid down as the old assets mature or are sold by A, and B uses those payments to fill up a new asset book against the deposits.
Seems like it could work on paper?
That being said, the FDIC’s sole criterion for selecting a resolution plan is the option that minimizes payout from the FDIC insurance fund. Assuming they can get it done with one buyer by tonight with $0 from the insurance fund, they won’t look at any cleverer options.
On this point, you’ll likely be interested in the discussion in Wednesday’s Matt Levine. Excerpt:
That’s part of why I was suggesting that it might be more valuable to only acquire of fraction of their customers.