Last Updated on March 12, 2023 by Bitfinsider
According to individuals with knowledge of the situation, US regulators overseeing the emergency breakup of SVB Financial Group are rushing to sell assets and make a part of clients’ uninsured deposits available as soon as Monday.
The bank’s distressed customers, many of whom are Silicon Valley entrepreneurs and their businesses, would receive an initial payout, the sum of which is still being determined, with additional funds coming in as the bank’s assets are sold. The amount will partly rely on how quickly by Sunday night the Federal Deposit Insurance Corp (FDIC) converts assets into cash.
The figures, which were disclosed by the individuals on condition of anonymity because they were discussing private discussions, range from 30% to 50% or more of uninsured deposits for the initial payment. Requests for feedback on the FDIC’s plans went unanswered from a spokesperson.
Business clients of Silicon Valley Bank are frantically trying to get access to their funds in order to maintain operations and pay workers. After revealing plans to raise capital on Friday, the bank collapsed in less than 48 hours, making it the largest US lender to fail in more than ten years. The company, which grew in recent years as a result of the deposits it accepted from tech startups, started to lose money as these customers used up their funding and depleted balances.
Silicon Valley Bank had more than $175 billion in deposits and $209 billion in total assets at the end of last year, but selling those assets to meet financial needs turned out to be expensive. As the Federal Reserve increased interest rates, SVB’s stockpile of bonds and Treasury securities lost worth.
Although deposits up to $250,000 are insured by the FDIC, the bulk of the money held at SVB was much more than that. The organization has declared that all protected assets will be accessible starting on Monday.
The FDIC stated on Friday that the quantity of uninsured assets was still being calculated. The watchdog announced that it will shortly pay uninsured depositors an advance dividend and make subsequent payments later. Executives on Wall Street anticipate a market for selling the rights to recover money.
Minimizing on losses
Senior Wall Street executives have been calculating the value of the bank’s assets and how much money could be swiftly extracted without a bailout or a deal to sell all or part of the bank to a stronger institution behind the scenes.
In those circles, paying less than half, like 30%, is considered inadequate in order to prevent severe repercussions in the technology industry and possibly elsewhere.
According to William Isaac, a former FDIC director, a partial up-front payment could at least offer some relief. “It makes it a lot easier for customers of the bank to deal with their losses,” said Isaac, who served in the position from 1981 to 1985. “It doesn’t completely eliminate the problem or the pain,” he added.
Clients of SVB have been abandoned in other ways besides just their deposits. By the end of 2022, the bank’s credit commitments totaled $62.5 billion, almost matching the size of its lending book.
The company didn’t give a detailed breakdown of those commitments, but capital call lines of credit made up the bulk of its lending. These resources enable venture capital and private equity firms to access cash to make an immediate investment in a startup. The investment is then repaid once funds from pensions and other committed investors come.
The ability of funds to invest rapidly would likely be constrained if those lines of credit were to vanish. Senior executives at two investment banking firms who recently spoke with the regulator claim that the FDIC has been setting the groundwork for a potentially protracted sale process.
One of the individuals said that an official told one company that, despite efforts to reach a fast settlement, a piecemeal sale taking weeks or months to complete looked more likely.
According to a second person, the agency casually invited the competing firm to submit bids for specific assets, which prompted dealmakers to examine the prospects for a number of publicly revealed holdings, including a desirable portfolio of loans to California wineries and vineyards.
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