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The parent company of Silicon Valley Bank filed for Chapter 11 bankruptcy protection a week after the tech-focused bank failed and was seized by the US government.
The filing of SVB Financial Group on Friday comes as no surprise, as many companies are now under the control of US banking regulators. During the 2008 financial crisis, the parent companies of failed banks Washington Mutual and IndyMac filed for bankruptcy protection the day after their banking operations failed.
Additionally, Silicon Valley Bank along with its CEO and chief financial officer were targeted this week in a class-action lawsuit alleging the company failed to disclose the risk of future interest rate hikes.
SVB Financial Group is no longer affiliated with Silicon Valley Bank after the seizure by the Federal Deposit Insurance Corp. The bank’s successor, Silicon Valley Bridge Bank, is open under the jurisdiction of the FDIC and is not included in the Chapter 11 filing.
The bankruptcy filing by SVB Financial Group will set up a legal battle over the bank’s remaining assets, between the parent company’s creditors and the bank’s regulators who want to bail out all of them. SVB Financial Group believes it has approximately $2.2 billion in liquidity.
The Santa Clara, California-based company said it also has investment securities accounts and other assets it is considering for sale.
Echoes of the 2007-2009 financial crisis
The Wall Street Journal reported that a group of distressed debt investors — mostly hedge funds — bought the bonds of Silicon Valley Bank’s parent company in a bet that there would be some gains for bondholders after the bankruptcy process was over.
“The Chapter 11 process will allow SVB Financial Group to preserve value as it evaluates strategic alternatives for its valued businesses and assets, particularly SVB Capital and SVB Securities,” said William Kosturos, chief restructuring officer for SVB Financial Group, in a statement on Friday.
WATCH | Why did Silicon Valley Bank collapse?
The sudden collapse of Silicon Valley Bank has rattled the US and Canadian markets. Producers Kieran Oudshoorn and Lauren Bird examine what led to the bank’s failure.
SVB Capital is a corporate venture capital and private credit fund. SVB Securities is a regulated broker-dealer. Both continue to operate and have sources of funding, the company said.
The closure of Silicon Valley Bank last Friday and New York-based Signature Bank two days later have brought to mind the financial crisis that plunged the United States into the Great Recession of 2007-2009.
At the end of the week, the federal government, determined to restore public confidence in the banking system, moved to protect all bank deposits, even those that exceed the FDIC limit of $250,000 per individual account.
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