SVB is the biggest bank failure since the financial crisis in 2008

March 10 (Reuters) – Startup-focused lender SVB Financial Group ( SIVB.O ) became the biggest bank to fail since the 2008 financial crisis on Friday, in a sudden collapse that rattled global markets, leaving billions of dollars belonging to companies and investors stranded.

California banking regulators closed the bank, which did business as Silicon Valley Bank, on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for the subsequent disposition of its assets.

Based in Santa Clara, the lender ranked as the 16th largest in the United States at the end of last year, with about $209 billion in assets. Specific details of the technology-focused bank’s abrupt collapse were a jumble, but the Fed’s aggressive rate hikes over the past year, which had reduced economic conditions in the startup space where it was a notable player, took center stage.

As it tried to raise capital to compensate for fleeing deposits, the bank lost $1.8 billion on Treasuries whose values ​​were torpedoed by the Fed rate hikes.

Silicon Valley Bank’s failure is the biggest since Washington Mutual went bust in 2008, a signature event that triggered a financial crisis that crippled the economy for years. The crash in 2008 led to stricter rules in the US and beyond.

Since then, regulators have imposed stricter capital requirements on US banks to ensure that individual bank collapses will not harm the broader financial system and economy.

The main office 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% of the bank’s $175 billion in deposits were uninsured at the end of 2022, according to the FDIC, and their fate remains to be determined.

The FDIC is trying to find another bank over the weekend willing to merge with Silicon Valley Bank, according to people familiar with the matter who requested anonymity because the details are confidential. While the FDIC hopes to put together such a merger by Monday to secure unsecured deposits, no deal is certain, the sources added.

An FDIC spokesperson did not immediately respond to a request for comment.

WANTED BUYER

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 assets, which include investment bank SVB Securities, asset manager Boston Private and equity research firm MoffettNathanson, the sources said. Those assets could attract competitors and private equity firms, the sources added.

It is unclear whether any buyer will step up to buy these assets without SVB Financial first filing for bankruptcy. Credit rating agency S&P Global Ratings said on Friday that it expects SVB Financial to go bankrupt due to its liabilities.

SVB has not responded to calls for comments.

Companies such as video game maker Roblox Corp RBLX.N and streaming device maker Roku Inc ( ROKU.O ) said they had hundreds of millions of dollars in deposits in the bank. Roku said deposits at SVB were largely uninsured, sending shares down 10% in extended trading.

Tech workers whose paychecks depended on the bank were also worried about getting their pay on Friday. An SVB branch in San Francisco displayed a note taped to the door telling clients 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 SVB underscore how a campaign by the US Federal Reserve and other central banks to fight inflation by ending the era of cheap money exposes vulnerabilities in the market. The concerns hit the banking sector.

US banks have lost more than $100 billion in market value in the past two days, and European banks have lost around $50 billion in value, according to a Reuters calculation.

U.S. lenders First Republic Bank ( FRC.N ) and Western Alliance ( WAL.N ) said on Friday their liquidity and deposits remained strong, aiming to reassure investors as their shares fell. Others such as Germany’s Commerzbank ( CBKG.DE ) issued unusual statements to reassure investors.

MORE PAIN

Some analysts predict more pain for the sector as the episode spread concern about hidden risks in the banking sector and its vulnerability to the rising cost of money.

“It could be a bloodbath next week as…short sellers are out there and they’re going to attack every single bank, especially the smaller ones,” said Christopher Whalen, chairman of Whalen Global Advisors.

US Treasury Secretary Janet Yellen met with banking regulators on Friday and expressed “full confidence” in their abilities to respond to the situation, the Treasury Department said.

The White House said on Friday that it had faith and trust in US financial regulators, when asked about SVB’s failure.

The origin of SVB’s collapse lies in a rising interest rate environment. As higher interest rates closed the market for IPOs to many startups and made private fundraising more expensive, some SVB clients began pulling out.

To fund the redemptions, SVB on Wednesday sold a $21 billion bond portfolio, mostly made up of U.S. Treasuries, and said it would sell $2.25 billion in equity and convertible preferred stock to fill the funding gap.

By Friday, the collapsing share price had made the capital raising unsustainable, and sources said the bank was trying to look at other options, including a sale, until regulators stepped in and shut the bank down.

The last FDIC-insured institution to close was Almena State Bank in Kansas on October 23, 2020.

Written 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; Written by Nick Zieminski; Editing by Toby Chopra, Anna Driver, William Mallard and Raju Gopalakrishnan

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