Troubled SVB Financial Group has filed a voluntary petition in the United States Bankruptcy Court for a court-supervised reorganization under Chapter 11 in order to preserve value. The filling on Friday comes just days after its former subsidiary Silicon Valley Bank was declared insolvent and taken over by regulators.
SVB files for bankruptcy
Since Silicon Valley Bank Financial announced on Monday that it would “explore strategic alternatives” for its remaining businesses, including its $9.5 billion venture capital and private credit platform, rumors of its imminent bankruptcy have since increased.
The announcement was made after the company’s bank abruptly failed on Friday, prompting the Federal Deposit Insurance Corporation to declare it insolvent and assume its deposits.
According to reports, on 17 March, Silicon Valley Bank announced that the funds and general partner entities of SVB Securities and SVB Capital were not included in the bankruptcy proceedings. While SVB Financial Group investigates strategic alternatives for its businesses, the entities will continue to operate normally.
The Chapter 11 process will allow SVB Financial Group to preserve value as it evaluates strategic alternatives for its prized businesses and assets, especially SVB Capital and SVB Securities. SVB Capital and SVB Securities continue to operate and serve clients, led by their longstanding and independent leadership teams.William Kosturos, Chief Restructuring Officer for SVB Financial Group
SVB Financial Group also stated that it is no longer affiliated with Silicon Valley Bank N.A. or SVB Private, the bank’s private banking and wealth management division. Silicon Valley Bridge Bank, N.A., the bank’s successor, operates under the Federal Deposit Insurance Corporation (FDIC) jurisdiction and is not included in the Chapter 11 filing.
Silicon Valley Bank’s financial situation
Friday’s premarket trading saw declines of between 1.5% and 2% in the shares of major U.S. banks. Due to a rise in yields, the tech lender was forced to sell a portfolio of treasuries and mortgage-backed securities to Goldman Sachs at a loss of $1.8 billion.
To close the gap, it attempted to raise $2.25 billion in common equity and preferred convertible stock. Still, frightened clients withdrew deposits from the bank, resulting in $42 billion in outflows in a single day.
While there have been various hiccups in the search for a buyer for Silicon Valley Bank’s banking division, the group is seeing “significant interest” in Silicon Valley Bank Securities and SVB Capital. Because these two are technically separate legal entities, they are not included in the Chapter 11 filing. Instead, they are still operating while being shopped around to potential buyers separately, a process that began earlier this week.
Silicon Valley Bank’s deep ties to the tech industry
Prior to its failure last week, which triggered a global financial panic, Silicon Valley Bank was mostly known as a regional, low-profile bank. However, within the tech ecosystem, the bank had molded itself to the quirks and mannerisms of the industry, becoming unusually intertwined with the lives and businesses of investors, entrepreneurs, and executives.
For the past 40 years, the institution has catered to the fact that high-growth, high-risk tech start-ups, and their investors do not follow standard business practices. Instead, these businesses prioritize rapid growth, frequently shift strategies, and celebrate failure.
They are frequently worth billions of dollars before ever turning a profit, and they can grow from silly ideas to behemoths at breakneck speed. To function, they rely on a tight network of money, workers, founders, and service providers. That one-of-a-kind, often irrational reality necessitated the use of a specialized bank.
Silicon Valley Bank was best known for courting young, risky start-ups that other banks refused to finance. However, its tentacles extended far beyond that. Many top venture firms, including Andreessen Horowitz, received loans from the bank. In addition, it invested from its own $9.5 billion fund in start-ups such as OpenDoor, a home-buying company, and Chainalysis, a cryptocurrency investigation start-up, as well as venture capital funds such as Sequoia Capital.
It housed some financial technology startups that were developing tools for start-up investors. It also mingled with the tech industry, sponsoring ski trips, conferences, industry newsletters, and fancy dinners.