SVB Financial Group files for bankruptcy amid banking chaos

June 2023 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

June 2023 Issue

In the largest banking failure since the financial crisis in 2008, startup-focused lender SVB Financial Group filed for Chapter 11 bankruptcy protection in the Southern District of New York in March.

The filing will allow SVB Financial Group to explore the sale of its SVB Security brokerage business and SVB Capital investment platform company. SVB Group has noted it has had “significant interest” for SVB Securities and SVB Capital. These two units still sit under the SVB Financial umbrella, but are technically different legal entities and are therefore not included in the Chapter 11 filing, nor in the sale of the bridge bank. They are also continuing to operate while being shopped around separately to potential buyers. SVB is working with investment bank Centerview Partners and law firm Sullivan & Cromwell to find buyers for its other assets.

“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,” said William Kosturos, chief restructuring officer of SVB Financial Group. “SVB Capital and SVB Securities continue to operate and serve clients, led by their longstanding and independent leadership teams.

“SVB Financial Group will continue to work cooperatively with Silicon Valley Bridge Bank. We are committed to finding practical solutions to maximize the recoverable value for stakeholders of both entities,” he added.

At the time of the filing, SVB Financial Group said it has approximately $2.2bn of liquidity, in addition to cash and interests held by SVB Capital and Securities. Those divisions are exploring “strategic alternatives” beyond Chapter 11. SVB Financial Group claims approximately $3.3bn in aggregate funded debt, and about $3.7bn of preferred equity outstanding.

While the group has already sold off its UK arm to HSBC for £1, the company notes that any potential sales within the US will be conducted through the Chapter 11 bankruptcy proceedings and subject to court approval.

The Chapter 11 filing came exactly seven days after SVB’s collapse and subsequent takeover by the Federal Deposit Insurance Corporation (FDIC), which insures deposits up to $250,000. The banking division of SVB, post-FDIC takeover, is now called Silicon Valley Bridge Bank.

SVB Capital has around $9.5bn in assets under management, with investments both in a number of major VCs and funds, as well as startups directly. SVB Securities has been around in one form or another since 1999. Based out of Boston, SVB Capital has brokered M&A and provided other services to startups and other entities across nearly 700 deals.

Lawyers for SVB Financial accused US bank regulators of having “drained” roughly $2bn of cash from the institution, setting the stage for a fight that will decide how much investors recoup in the restructuring. SVB Financial’s legal team accused the FDIC of blocking or trying to claw back wire transfers made by SVB Financial from its bank account to other external accounts it had established. SVB Financial was able to transfer just over $93m out of its accounts at SVB before they were locked, and in total has about $186m deposited at Citizens Bank and Bank of New York Mellon, though the vast majority of SVB Financial’s cash, about $1.9bn, remains at Silicon Valley Bridge Bank.

The collapse of SVB Financial Group is more evidence of the biggest crisis in the banking space since the 2008 financial crisis, and is thanks, in large part, to the efforts of central banks, such as the Fed, attempting to combat rising inflation. Billions have been wiped off the stock market value of many banks across Europe and the US. In March, the Swiss government announced that banking giant UBS would buy Credit Suisse in a merger designed to stem further banking turmoil after Credit Suisse had come to the brink of collapse. UBS agreed to pay $3.3bn for its rival in a hastily arranged and controversial deal.

SVB’s bankruptcy filing also came a day after Wall Street’s biggest banks announced a $30bn deal to prop up First Republic, another mid-sized bank whose depositors fled, scared off by the recent banking crisis.

Richard Summerfield