Feds probe Goldman Sachs role in failed SVB fundraising deal

The Wall Street titan is cooperating and providing information to the government in connection with their investigations and inquiries into Silicon Valley bank, including the role the firm played with the now-failed bank in March, according to a regulatory filing. 

SVB offloaded a $24 billion portfolio to Goldman at a loss and sought the firm’s help in raising more than $2.2 billion to cover the shortfall, according to disclosures in March. Goldman couldn’t pull off the deal and a bank run in the wake of that offering effectively doomed SVB.

What started off as troubles at a niche bank catering to the Silicon Valley tech industry quickly snowballed into a pile of worries for regional banks as investors questioned their stability. The reverberations echoed in Europe, sparking a renewed slump in Credit Suisse Group AG share prices, which resulted in a hastily arrange marriage with cross-town rival UBS Group AG orchestrated by the Swiss government.

A representative for Goldman Sachs declined to comment.

Lawmakers from California had been pushing for a federal investigation into what role Goldman Sachs might have played in the collapse of SVB. The 20 Democratic House members — led by Senate candidate Adam Schiff — asked the Justice Department, the Securities and Exchange Commission and the Federal Deposit Insurance Corp. to include the New York-based firm in their preliminary investigations.

Goldman’s Role

SVB’s demise began with the risk of its credit ratings getting cut by Moody’s Investors Service that would have pushed it to the brink of junk-bond status. In response, SVB tapped Goldman to help it raise fresh capital. Goldman purchased a chunk of SVB’s investment portfolio with plans to flip it. That meant that SVB realized a $1.8 billion loss, with Goldman in a position to pocket fees from selling the portfolio back into the market at a higher price.

Then, on March 8, Goldman pitched a plan to investors to help plug that hole, and then some, by raising $2.25 billion in capital from General Atlantic and other investors.

Rival banks and investors have privately and publicly pointed fingers at Goldman for failing to line up the capital in advance and spooking the market. In the bankers’ view, they were racing the clock to defuse the Moody’s threat. That didn’t leave them enough time to canvass the market, line up the funding and present a neatly put-together deal.

SVB’s customers raced to pull their deposits from the bank, concerned about its health. On March 9, customers sought to yank $42 billion of deposits from SVB, or roughly a quarter of its year-end deposits.

The spiraling chaos forced Goldman to shelve the offering, and by the end of the week regulators had seized the California firm, which at the time was the second-biggest bank failure in US history. First Republic’s seizure earlier this week meant that the SVB dropped back to third place on the list.