SVB Financial Group, whose Silicon Valley bank was taken over by US banking regulators last week, is exploring seeking bankruptcy protection as an option to sell assets that include its investment bank and venture capital firm, people familiar with the matter said.
The group had said on Monday that it was studying strategic alternatives for its assets but did not disclose bankruptcy as one of the possible options.
According to the sources, the group has not yet made a final decision on the path it will take and is still trying to find investors to buy its assets without filing for bankruptcy, which is also an option.
One of the sources stated that the financial group is also exploring other alternatives to restructure and recapitalize its investment bank and its venture investment unit.
In addition to looking for buyers for assets, companies in such situations sometimes try to find investors to inject new money into a project.
The collapse of “Silicon Valley”—the story of a bank that disturbed entrepreneurs
US regulators took emergency action earlier this week in the wake of the collapse of the Silicon Valley bank, including guaranteeing uninsured deposits with the bank.
Potential buyers often hesitate when distressed companies try to sell assets.
transaction can be canceled. One reason for this is that if the company later seeks Chapter 11 protection within a certain time frame, it will be considered pre-bankruptcy.
It is worth noting that the investment bank and the venture investment company of the SVB financial group are separate from Silicon Valley Bank.
- The crisis began after the Silicon Valley Bank, founded in 1983 to finance technology and emerging companies, exceeded the maximum deposit size target in a bank strategy last year.
- The bank’s deposits have quadrupled over the past four years, and the volume of loans has increased from $23 billion to $66 billion.
- This boom in deposits prompted the bank to invest in US Treasury bonds and mortgages worth about $128 billion, with fixed returns of 1.5 percent.
- With the US Federal Reserve tightening monetary policy and raising interest rates as a result of the Ukraine war, the difference between the returns that the bank obtains from bonds and the interest rates that must be paid on deposits has widened.
- All this coincided with a widespread recession in the technical sector, in which the bank’s work specializes. Finally, it did not succeed in achieving the target percentage of lending, which reflected negatively on returns.
- The surprising thing is that all this happened, although at the end of 2022 the bank became solvent, as it had $175 billion in deposits and $209 billion in total assets.
