The parent company of Silicon Valley Bank filed for Chapter 11 bankruptcy a week after the tech-focused bank went bankrupt and was seized by the US government.
SVB Financial Group’s filing on Friday comes as no surprise, with much of the company now under the scrutiny of US banking regulators. During the 2008 financial crisis, the parent companies of failed banks Washington Mutual and IndyMac filed for bankruptcy protection in the days after their banking operations failed.
Also, Silicon Valley Bank, along with its CEO and chief financial officer, came under fire this week in a class-action lawsuit that says the company has failed to disclose the risks future interest rate hikes would have on the his activity.
SVB Financial Group is no longer affiliated with Silicon Valley Bank following its seizure by the Federal Deposit Insurance Corporation. The bank’s successor, Silicon Valley Bridge Bank, is operated under the jurisdiction of the FDIC and is not included in the Chapter 11 filing.
SVB Financial Group’s bankruptcy filing will create a legal battle over the bank’s remaining assets, between the holding company’s creditors and banking regulators who are trying to make depositors clean. SVB Financial Group believes it has approximately USD 2.2 billion in cash. He also said he also has other accounts of valuable investment securities and other assets that are being considered for sale.
The Wall Street Journal reported that a group of troubled debt investors — mostly hedge funds — have bought the bonds of Silicon Valley Bank holding company on bets that there will be some proceeds for the bondholders after the bankruptcy process is complete.
“The Chapter 11 process will enable SVB Financial Group to preserve value as it evaluates strategic alternatives for its valuable businesses and assets, notably SVB Capital and SVB Securities,” said William Kosturos, Chief Restructuring Officer of SVB Financial Group, in a statement prepared Friday.
SVB Capital is the venture capital and private credit fund of the company. SVB Securities is a regulated broker-dealer. Both continue to operate and have funding sources, the company said.
The closing of Silicon Valley Bank on Friday and Signature Bank of New York two days later brought back bad memories of the financial crisis that plunged the United States into the Great Recession some 15 years ago.
Over the weekend the federal government, determined to restore public confidence in the banking system, moved to protect all bank deposits, even those that exceeded the FDIC’s $250,000 limit per individual account.