Jakarta, CNBC Indonesia – Investment bank giant Goldman Sachs and rating agency Moody’s were among the parties that triggered the fall of the US medium-sized bank, Silicon Valley Bank (SVB).
At the end of February, SVB officials were known to have visited Goldman to ask for guidance in resolving acute problems arising from the Fed’s interest rate increase. They need to raise cash but aren’t sure how best to go about it.
Soaring interest rates have become an increasingly real threat to banks. Deposits and the value of bank bond portfolios fell sharply. Ratings agency Moody’s is at the same time preparing to downgrade SVB.
As a result, the bank had to reorganize its finances to avoid a funding shortfall that would have a negative impact on the company’s profits.
According to a report by The Wall Street Journal (WSJ) on interviews with bankers, lawyers and investors, the SVB talks with Goldman were held for about 10 days. The final product was an announcement on March 8 of a loss of nearly US$2 billion (Rp 30 trillion) and a plan to sell shares that terrified investors.
SVB Financial Group shares fell the next morning. The main customers of the company viz startup and venture capitalists with large balances whose deposits were uninsured panicked, trying to withdraw US$42 billion (Rp 630 trillion) from banks in one day.
While few could have predicted the market’s strong reaction to the SVB disclosure, Goldman’s plans for the bank had one fatal flaw. Goldman downplayed the danger that an abundance of bad news could trigger a crisis of confidence that could quickly bring down banks.
Goldman is an adviser to the rich and powerful. The investment bank arranges mergers, helps companies raise money and devise creative solutions to difficult situations. These capabilities generate billions of dollars for the company each year.
However, for SVB, Goldman’s suggestion came at the cost of the most expensive. The SVB collapsed at incredible speed in the second largest bank failure in US history, triggering a trans-Atlantic banking crisis that regulators are trying hard to contain.
SVB executives approached Goldman with plans to raise capital. Two private equity firms, General Atlantic and Warburg Pincus LLC, are on the bank’s list of potential investors.
Executives want to do private placement-a deal in which they enter into a strategic investor to buy a specified number of shares at a certain price. SVB wanted to do it fast as Moody’s was preparing to downgrade the bank, a move executives feared would alarm investors.
Goldman’s bankers moved closer to the two private equity firms. At the same time, Goldman is offering SVB an option to sell its hybrid shares to public investors (rights issue) and private (private placement). This option Goldman thinks will allow the company to find enough investors to fully fund the $2.25 billion deal, but will also offer the public an opportunity to buy shares at the same price.
On March 5, one of the potential investors walked out. Warburg said he needed more time to evaluate the deal with SVB, and did not want to participate in a bid with a public component.
Meanwhile General Atlantic agreed to raise US$500 million in a stock sale. But in an increasingly narrow deadline for public disclosure, SVB is still US$1.75 billion short of its target.
Goldman decided that the only option was a public stock offering as well as a capital increase by strategic investor General Atlantic. SVB executives signed off on the plan.
On the trading desk, Goldman is also concocting another deal. SVB is seeking a buyer for its available-for-sale debt securities portfolio (Available for Sale/AFS) worth US$ 21 billion (Rp 315 trillion). The buyer is Goldman.
On March 8, Goldman completed the purchase of SVB’s portfolio of securities at a discount from their market value. After the market closed, SVB announced that it had suffered a loss of US$1.8 billion (Rp 27 trillion) on the sale, without disclosing a buyer, and said it would sell shares to raise capital.
After that, the company’s share price traded down and the pressure got worse after Silvergate announced that it would close the bank because cash was insufficient after customers withdrew large amounts of money (bank run).
This was then experienced by SVB, which is currently still under the control of the US LPS, which is also working to find a buyer for the bank from California.
(fsd/fsd)
