Thread by Scott Galloway
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- Mar 12, 2023
- #Economics #Banking
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Sharp Relief: Thoughts on #SVB
Disclosure: I’m directly or indirectly involved with several firms who had/have funds at SVB. None are impaired, or facing liquidity issues due to failure.
What happens (conjecture):
/1
Disclosure: I’m directly or indirectly involved with several firms who had/have funds at SVB. None are impaired, or facing liquidity issues due to failure.
What happens (conjecture):
/1
–I believe, Monday/imminently, a deal to acquire SVB’s assets, with limited backstopping/support by the government, is announced. Deposits will be backed/guaranteed by acquirer.
/2
/2
–Likely downside scenarios coming into sharp relief for Biden administration. Cost of backstopping a deal (e.g., buy bonds and hold to maturity), relative to downside, makes this the insurance deal of the century.
/3
/3
–If deposits aren’t covered 100% by COB Monday, capital will only invest in firms that put all proceeds in (a few) banks with trillions in assets.
–Inspires a slow death march for most regional/niche banks.
/4
–Inspires a slow death march for most regional/niche banks.
/4
–Banking system becomes less robust (fragile) as the “too big to fail” banks get bigger and have less reason to be competitive/manage risk.
–The lessening of competition means greater costs, and less innovation.
/5
–The lessening of competition means greater costs, and less innovation.
/5
–The water torture then begins for Biden admin as media highlights hundreds of stories of good firms laying off good people.
–Fear is morphing to greed & a big-5 CEO looks in the mirror & sees first-ballot Hall of Fame corporate baller who pulled off the deal of the decade.
/6
–Fear is morphing to greed & a big-5 CEO looks in the mirror & sees first-ballot Hall of Fame corporate baller who pulled off the deal of the decade.
/6
–Tier-1 VCs put out a statement they will take all business to an acquirer (already did this)
–80+% of capital/clients stay w/acquirer
/7
–80+% of capital/clients stay w/acquirer
/7
–In 24 hours, vs. 24 years, acquirer gets revenue lines and relationships with 50% of most promising start-ups in the world’s largest economy…on great terms from a government that becomes increasingly creative as the (Sun)day goes by (see above: sharp relief).
/8
/8
But bailouts are bad and create moral hazard.
–Yes, but we need a new word when shareholders, unsecured debt holders and management get wiped out, but we make depositors whole.
–Moral hazard here would be that a government-backed deal leads firms to be ...
/9
–Yes, but we need a new word when shareholders, unsecured debt holders and management get wiped out, but we make depositors whole.
–Moral hazard here would be that a government-backed deal leads firms to be ...
/9
... more promiscuous re where they deposit money. Even if a deal is reached, I don’t see how companies aren’t more prude abt where they bank. The execs who made the poor cash management/investment decision have seen their equity, & their investors’, wiped out. ...
/10
/10
... I don’t believe moral hazard is relevant here.
–Delta Airlines should not have been bailed out. But if the airline had been allowed to go Chapter 11, and passengers who purchased tix (not flown yet) didn’t get their money back, and from that point forward only flew ...
/11
–Delta Airlines should not have been bailed out. But if the airline had been allowed to go Chapter 11, and passengers who purchased tix (not flown yet) didn’t get their money back, and from that point forward only flew ...
/11
... on the 2 biggest airlines, the industry, consumers & economy would suffer. Then the government’s limited investment, weighed against downside, is warranted.
–GS’ & Wells Fargo’s greed glands should be running full tilt as this would give Marcus a desperately needed ...
/12
–GS’ & Wells Fargo’s greed glands should be running full tilt as this would give Marcus a desperately needed ...
/12
... purpose/center of gravity. Wells could use this as a “get out of detention” card, & their brand/roots (same for BofA) play to CA and innovation. Few brands (SVB) have this dominance in this important a sector.
–Brand equity/relationships preserved as it was worth saving.
/13
–Brand equity/relationships preserved as it was worth saving.
/13
Again, conjecture. Thoughts?
/end
/end
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Ben Hunt @EpsilonTheory
·
Mar 12, 2023
Good thread.