What would you do if you run into troubles financially? I’d ask for help if I were you.
One thing that sometimes happens in financial markets is that a firm runs into a liquidity crisis. It has borrowed a lot of money short-term to fund long-term investments, but its short-term lenders have gotten spooked and have pulled their financing, and it can’t sell its long-term investments fast enough or at a high enough price to pay them back. When that happens, a classic solution is for some bigger and better-capitalized firm with an appropriately long-term horizon to buy the troubled firm or its assets. “We know that these assets are good,” the bigger firm might think, “so we will buy them at a discount, solve the liquidity crisis and get rich.” That is sort of the point of being a big and well-capitalized firm: You are a bit boring in the boom times, but then in the bust you can go around scooping up lots of good assets cheap.
But this is all pretty schematic, and in real life it is not always the case that a liquidity crisis is just, or primarily, a liquidity crisis. If some firm runs into a liquidity crisis and can’t pay back its short-term debt and calls up a big well-capitalized firm for help, the big well-capitalized firm has to go look at its assets and see what’s going on. Sometimes the big firm will crack open the books and conclude “yes, these assets are great, your lenders are spooked for no reason, it’s an amazing buying opportunity for us” and buy them. Other times the big firm will crack open the books and find a crayon drawing of a billion-dollar bill and say “ah, yes, that’s your problem right there” and walk away. Sometimes the liquidity crisis is well deserved.
Crypto exchange operator FTX looked at making a deal with troubled crypto lender Celsius but ultimately walked away, two people with knowledge of the matter told The Block.
FTX began talks with Celsius about providing financial support or making an acquisition but decided against proceeding after looking at Celsius’s finances, the sources said. Celsius had a $2 billion hole in its balance sheet and FTX found the company difficult to deal with, one of the sources said.
Celsius did not respond to The Block’s request for comment.
Celsius has been fighting for survival since freezing all withdrawals on June 12, citing “extreme market conditions.” Clients’ funds have remained stuck ever since.
See if I was looking for a bailout I would want to be easy to deal with but that is just me.