U.S. regulators are willing to entertain the prospect of the government backing off Silicon Valley Bank and Signature Bank if it helps push for a sale of the failed lenders, according to people briefed on the matter.
The Federal Deposit Insurance Corporation’s willingness to discuss loss sharing marks a significant shift in position for the agency, which had categorically rejected such an arrangement during its attempted and failed SVB auction last weekend.
However, the FDIC did not give the bidders an indication of the size of the losses they would incur or any sense of the arrangement, the people said.
The sale of SVB or Signature could result in immediate losses because the new buyer would have to mark down the price of some assets to reflect their current market value.
After seizing control of SVB and Signature last week, the FDIC tried to auction the banks to buyers but failed to attract much interest, receiving only one bid from a bidder outside the banking sector that was rejected.
The lack of interest is due to the agency’s reluctance to discuss the possibility of incurring losses on the lender’s assets, one of the people said.
Buyout titans such as Blackstone Group and Apollo Global Management have expressed interest in buying part of SVB’s loan book. However, the FDIC is only willing to take offers from banks for all SVB commercial banks, including loans and deposits, according to people involved in the process.
On Friday, SVB’s parent company filed for bankruptcy protection. The move comes as part of an effort to salvage value from two divisions — the broker-dealer business and technology investments — that are separate from the deposit-taking bank.
The FDIC declined to comment on the specifics of the SVB and Signature sales process, which was handled by bankers at Piper Sandler. A banker at Piper Sandler involved in the sale process declined to comment.
“We are actively marketing both institutions,” said a spokesman for the FDIC. “We haven’t set a deadline for the bid, but we hope to have it finalized within a week.”
Loss sharing agreements are common in FDIC sales. The FDIC offered a generous loss sharing agreement to get some deals done during the 2008 financial crisis, but later came under criticism when some of the deals proved lucrative for buyers.
Agreeing to a loss-sharing arrangement could also open the government to accusations that efforts to save some banks were bailouts.
Most loss-sharing agreements are set up as a type of insurance that will cover the overall potential loss that the buyer may incur from the deal, with the government covering anything above that amount. But the FDIC has at times agreed to take the so-called first loss position, covering any initial losses that are identified at the time of the transaction.
Additional reporting by Eric Platt in New York