By David French, Echo Wang and Alun John
(RockedBuzz via Reuters) – Startup lender SVB Financial Group on Friday became the biggest bank to fail since the 2008 financial crisis, in a sudden crash that rocked global markets, stranding billions of dollars belonging to companies and investors.
California bank regulators shut down the bank, which was trading as Silicon Valley Bank, on Friday and named the Federal Deposit Insurance Corporation (FDIC) as receiver for the subsequent disposition of its assets.
Headquartered in Santa Clara, the lender was ranked the 16th largest in the United States at the end of last year, with about $209 billion in assets. The details of the tech-focused bank’s sudden collapse were a mixed bag, but the Fed’s aggressive interest rate hikes over the past year, which had tightened financial conditions in the start-up space where it was a major player, seemed in first floor.
In an effort to raise capital to make up for runaway deposits, the bank lost $1.8 billion in Treasuries whose values were torpedoed by Fed rate hikes.
The Silicon Valley Bank failure is the largest since Washington Mutual went bankrupt in 2008, a signature event that triggered a financial crisis that has hobbled the economy for years. The crash of 2008 imposed tougher rules in the United States and beyond.
Since then, regulators have imposed tougher capital requirements on US banks aimed at ensuring that individual bank collapses do not harm the financial system and the wider economy.
The headquarters and all branches of Silicon Valley Bank will reopen on March 13, and all insured depositors will have full access to their insured deposits no later than Monday morning, the FDIC said.
But 89 percent of the bank’s $175 billion in deposits were uninsured as of the end of 2022, according to the FDIC, and their fate remains to be determined.
The FDIC is racing to find another bank over the weekend that is willing to merge with Silicon Valley Bank, according to people with knowledge of the matter who declined to be named because the details are classified. While the FDIC hopes to pull together such a merger by Monday to safeguard unsecured deposits, no deal is certain, the sources added.
An FDIC spokesperson did not immediately respond to a request for comment.
BUYERS WANTED
Separately, SVB Financial, the parent company of Silicon Valley Bank, is working with investment bank Centerview Partners and law firm Sullivan & Cromwell to find buyers for its other businesses, including investment bank SVB Securities, the asset manager Boston Private and equity research firm MoffettNathanson, the sources said. These businesses could attract competitors and private equity firms, the sources added.
It is unclear whether a buyer will come forward to buy these assets without SVB Financial filing for bankruptcy first. Credit rating agency S&P Global Ratings said on Friday it expects SVB Financial to go bankrupt due to its liabilities.
SVB did not respond to requests for comment.
Companies like video game maker Roblox Corp and streaming device maker Roku Inc said they have hundreds of millions of dollars in deposits at the bank. Roku said its deposits at SVB were largely uninsured, sending its shares down 10% in extended trading.
Even tech workers whose salaries depended on the bank were worried about getting paid on Friday. An SVB branch in San Francisco displayed a note taped to the door urging customers to call a toll-free number.
SVB Financial CEO Greg Becker sent a video message to employees on Friday acknowledging the “incredibly difficult” 48 hours leading up to the bank’s collapse.
The problems at the SVB underscore how a campaign by the US Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing market vulnerabilities. The worries hit the banking sector.
US banks have lost more than $100 billion in stock market value over the past two days, with European banks losing about another $50 billion in value, according to a calculation by RockedBuzz via Reuters.
US lenders First Republic Bank and Western Alliance said on Friday that their cash and deposits remained strong, aiming to calm investors as their shares slide. Others, such as Germany’s Commerzbank, have issued offbeat statements to reassure investors.
MORE PAIN
Some analysts expect further pain for the sector as the episode has raised concern about hidden risks in the banking sector and its vulnerability to rising borrowing costs.
“There could be a bloodbath next week as … the short sellers are out there and will attack every single bank, especially the smaller ones,” said Christopher Whalen, president of Whalen Global Advisors.
US Treasury Secretary Janet Yellen met with banking regulators on Friday and expressed “full confidence” in their ability to respond to the situation, the Treasury said.
The White House said on Friday it had faith and trust in US financial regulators when asked about SVB’s bankruptcy.
The genesis of the SVB collapse lies in an environment of rising interest rates. As higher interest rates have closed the initial public offering market for many startups and made private fundraising more expensive, some SVB clients have started withdrawing money.
To fund redemptions, the SVB on Wednesday sold a $21 billion bond portfolio made up mostly of U.S. Treasury bills and said it would sell $2.25 billion in common stock and convertible preferred stock to plug its funding gap. .
By Friday, the stock price plunge had made its capital raise unsustainable and sources said the bank tried to look into other options, including a sale, until regulators stepped in and shut down the bank. .
The last FDIC-insured institution to close was Almena State Bank in Kansas on October 23, 2020.
(Writing by John O’Donnell, Noor Zainab Hussain, Paritosh Bansal; Additional reporting by Niket Nishant, Emma-Victoria Farr, Nathan Frandino, Anna Tong, Krystal Hu, Greg Bensinger, Pete Schroeder, Greg Roumeliotis, Jo Mason, Marc Jones, (Iain Withers, Elizabeth Howcroft, Noel Randewich, Yoruk Bahceli, Lananh Nguyen, Eva Matthews and Nupur Anand; Screenplay by Nick Zieminski; Editing by Toby Chopra, Anna Driver, William Mallard and Raju Gopalakrishnan)
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