Silicon Valley Bank, which collapsed last week even as the lender’s shares fell as much as 60 per cent in a day, has now officially filed for bankruptcy. Its parent SVB Financial Group was earlier exploring bankruptcy protection as an option for selling assets that include its investment bank and venture capital business.
SVB Financial Group, seized last week by the US, is filing for Chapter 11 bankruptcy protection. SVB Financial Group is no longer affiliated with Silicon Valley Bank after its seizure by the Federal Deposit Insurance Corp.
The bank’s successor, Silicon Valley Bridge Bank, is being run under the jurisdiction of the FDIC and is not included in the Chapter 11 filing. SVB Financial Group believes it has about USD 2.2 billion of liquidity.
The collapse of Silicon Valley Bank, also know as SVB, is being termed as the biggest bank failure since the crisis at Washington Mutual in 2008 or the global financial crisis. This was the 16th biggest lender in the US and was the go-to bank for several startups across the world.
The bank failed after clients — many of them venture capital firms and VC-backed companies that the bank had cultivated over time — began pulling out their deposits, creating a run on the bank. The SVB collapse led investors to speculate that the Fed would now hesitate to hike interest rates by a super-sized 50 basis points this month.
On March 8, SVB announced it has sold $21 billion of securities from its portfolio at a $1.8 billion loss. The Group was holding a $2.25 billion share sale to shore up finances, which included US Treasuries and mortgage-backed securities.
Crypto-based lender Silvergate annoucnes a plan to wind down operations and facilitate liquidate owing to heavy losses following the collapse of crypto exchange FTX, led to increased withdrawals from SVB.
On March 9, a regulatory filing shows SVB has a negative cash balance of $958 million. SVB’s shares plunge 41 per cent, its biggest slump since 1998. “Despite the bank being in sound financial condition prior to March 9th, investors and depositors reacted by withdrawing $42 billion of deposits, causing a run on the bank,” says the filing.
Later, on March 10, the US Federal Deposit Insurance Corporation (FDIC) announced that SVB “was closed today by the California Department of Protection and Innovation, which appointed the FDIC as receiver”.
Top Indian IT firms Tata Consultancy Services and Infosys have the highest exposure to regional banks in the United States that are gripped by a financial turmoil, analysts at J.P.Morgan said on Friday.
Regional banks in the United States account for 2-3 per cent of their revenue, J.P. Morgan said in a note, adding that the exposure to the recently collapsed Silicon Valley Bank could be 10-20 basis points for TCS, Infosys and smaller rival LTIMindtree, with the Tata group company in the lead.
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