Feds investigate Goldman Sach’s role in failed SVB financing deal

Goldman Sachs The role of Group Inc. of Silicon Valley Bank’s attempt to raise funds in March is under scrutiny by US government agencies, which are looking at the failed transaction as helping to push the regional US banking system into chaos.

The Wall Street titan has cooperated and provided information to the government in connection with its investigations and inquiries into the Silicon Valley bank, including the role the company played in the now-failed bank in March, according to a regulatory filing.

SVB offloaded a $24 billion Goldman portfolio in the 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 after that offering effectively destroyed SVB.

What began as troubles at a niche bank catering to Silicon Valley’s technology industry quickly snowballed into a pile of concerns for regional banks as investors questioned their stability. on. The echoes echoed in Europe, sparking a renewed fall Credit Suisse Group AG share prices, resulting in a quick arranged marriage with a cross-town rival UBS Group AG orchestrated by the Swiss government.

A representative for Goldman Sachs declined to comment.

Lawmakers from California are pushing for a federal investigation into what role Goldman Sachs may have played in SVB’s collapse. The 20 members of the Democratic House – 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 company in their preliminary investigation.

Goldman’s Paper

SVB’s demise begins with the risk of a credit rating 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 new capital. Goldman bought a chunk of SVB’s investment portfolio with plans to flip it. That means SVB realized a $1.8 billion loss, with Goldman in a pocket position to pay from selling the portfolio back to 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 capital in advance and spooking the market. As the bankers watch, they race against the clock to stop the Moody threat. That doesn’t leave them enough time to canvass the market, line up funding and present a well-integrated deal.

SVB customers raced to pull their deposits out of the bank, worried about its health. As of March 9, customers sought to withdraw $42 billion in deposits from SVB, or roughly a quarter of deposits by the end of the year.

The burgeoning turmoil forced Goldman to withdraw the offer, and over the weekend regulators seized the California firm, which at the time was the second-largest bank failure in US history. Taking First Republic earlier this week means that SVB is back in third place on the list.

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