I don’t have any inside scoop because I’m not in that world any more, so take this purely as my personal opinion, but I wouldn’t be at all surprised if that happens.
A lot of seemingly successful business models are hard to distinguish from the beneficial effect of ultra-low rates and a stable, growing economy[1] so the sudden raising of rates is going to hurt a lot. I also think the full effects are taking a while to filter through into the real economy so I personally don’t think we’ve seen the worst impacts yet. I see a lot of empty office and retail space and know that someone took out a loan to build or buy that building and now don’t have the rental income to pay back that loan. Like I say just one person’s opinion so take it with a pinch of salt.
Intuitively, a hundred billion dollar auction with only a few hours to research, analyze and horsetrade must necessarily result in a lower winning bid.
Given all the uncertainty about the assets and other regional bank dominoes that are yet to fall, it seems like even the winner will be a low-ball offer.
Doesn't that mean a bigger haircut for uninsured depositors than would be the case if assets were methodically liquidated over a few weeks or months instead of a fire sale on one Sunday?
> Intuitively, a hundred billion dollar auction with only a few hours to research, analyze and horsetrade must necessarily result in a lower winning bid.
Maybe. Or maybe the winner's curse will apply.
> Doesn't that mean a bigger haircut for uninsured depositors than would be the case if assets were methodically liquidated over a few weeks or months instead of a fire sale on one Sunday?
Maybe. Equally the longer depositors can't access their deposits, the worse things are. FDIC would rather get the depositors their 100% quickly than get maximum recovery for junior debt or equityholders. Now, if there's no offer coming in that covers 100% of deposits, then that gets more interesting; it's always possible that the FDIC will decide to keep running the bank and purse that kind of strategy.
It sounds like they are selling the bank, not the assets. If they are selling the bank then I think the depositors will be made whole by the buyer. This will factor into the bid.
This is just my understanding, I am very open to being wrong.
Since you're on this thread..who normally runs the investment decisions inside of a bank, whether retail or investment. Is there a CIO office or is that the function of their Treasury department? Does it go by other names?
And in your experiences in 2008, what sort of strategy planning/what if scenarios were being played out since it was unprecedented and no one knew what was going to happen the next day
A lot of seemingly successful business models are hard to distinguish from the beneficial effect of ultra-low rates and a stable, growing economy[1] so the sudden raising of rates is going to hurt a lot. I also think the full effects are taking a while to filter through into the real economy so I personally don’t think we’ve seen the worst impacts yet. I see a lot of empty office and retail space and know that someone took out a loan to build or buy that building and now don’t have the rental income to pay back that loan. Like I say just one person’s opinion so take it with a pinch of salt.
[1] Hence the famous Buffett quote. https://www.goodreads.com/quotes/43237-it-s-only-when-the-ti...