US authorities are probing Goldman Sachs’ role in Silicon Valley Bank's collapse
Per Bloomberg
U.S. government agencies are investigating Goldman Sachs Group Inc.'s involvement in Silicon Valley Bank's (SVB) unsuccessful fundraising efforts in March, which contributed to the destabilization of the U.S. regional-banking system.
According to a regulatory filing, Goldman Sachs is cooperating with the authorities and providing information related to their investigations into SVB, including the firm's role in the bank's activities in March.
SVB sold a $24 billion portfolio to Goldman Sachs at a loss and enlisted the firm's assistance in raising over $2.2 billion to address the deficit, as disclosed in March. However, Goldman Sachs was unable to execute the deal, and a subsequent bank run following the failed offering effectively led to SVB's collapse.
The issues that originated with SVB, a niche bank serving the tech industry in Silicon Valley, rapidly escalated into broader concerns about the stability of regional banks. The impact was also felt in Europe, where Credit Suisse Group AG's share prices experienced a renewed decline, leading to a swift merger with UBS Group AG facilitated by the Swiss government.
Goldman Sachs declined to comment on the matter.
California lawmakers have been advocating for a federal investigation into Goldman Sachs' potential role in SVB's downfall. A group of 20 Democratic House members, led by Senate candidate Adam Schiff, requested that the Justice Department, the Securities and Exchange Commission (SEC), and the Federal Deposit Insurance Corp. (FDIC) include Goldman Sachs in their preliminary investigations.
SVB's troubles began with the prospect of a credit rating downgrade by Moody's Investors Service, which would have brought the bank close to junk-bond status. In response, SVB engaged Goldman Sachs to assist in raising new capital. Goldman Sachs acquired a portion of SVB's investment portfolio with the intention of reselling it, resulting in a $1.8 billion loss for SVB and potential fees for Goldman Sachs from reselling the portfolio at a higher price.
On March 8, Goldman Sachs proposed a plan to investors to raise $2.25 billion in capital from General Atlantic and other investors to address the loss and secure additional funds.
Some rival banks and investors have criticized Goldman Sachs for not securing the capital beforehand and for unsettling the market. Goldman Sachs' bankers argued that they were under time pressure to address the threat from Moody's, leaving them insufficient time to survey the market, secure funding, and present a well-organized deal.
Concerns about SVB's financial health led customers to withdraw their deposits from the bank. On March 9, customers attempted to withdraw $42 billion of deposits from SVB, representing approximately a quarter of its year-end deposits.
The escalating situation forced Goldman Sachs to abandon the offering, and by the end of the week, regulators had taken control of SVB, marking the second-largest bank failure in U.S. history at that time. SVB's ranking dropped to third place following the seizure of First Republic earlier this week.