Regulatory agencies are looking into what Goldman Sachs did about the botched capital raise that led to Silicon Valley Bank’s (SVB) demise. According to sources with knowledge of the situation, as reported by The Wall Street Journal, the Federal Reserve and Securities and Exchange Commission (SEC) are currently looking into Goldman Sachs’ participation in the acquisition of SVB’s securities portfolio before the bank’s collapse.
The activities done by Sachs during its unsuccessful capital raise preceding the collapse of SVB are the main subject of both agencies’ investigations. Additionally, as part of its investigation into SVB, the Justice Department reportedly subpoenaed Goldman Sachs.
Insiders reveal that the Federal Reserve and SEC are keen on acquiring records. They are specifically interested in Goldman Sachs’ dual roles as SVB’s adviser for capital raising and buyer of its securities portfolio. The agencies are allegedly investigating potential unlawful discussions. These discussions would involve Goldman’s trading division and its investment banking division regarding the sale of the portfolio.
In response to questions, Goldman Sachs said that it is working with the authorities looking into SVB and sharing information with them. The company acknowledges its involvement with SVB starting in March 2023. It is actively participating in the ongoing inquiries.
Goldman Sachs and Bank Capital
SVB reportedly hired Sachs to help the bank capital before it went under. At the same time, its trading branch paid less for SVB’s $21 billion portfolio of debt securities that were up for sale. Bankers and financial attorneys note that such practices are uncommon but can occur during financial distress.
Sources with knowledge of the situation revealed that Goldman suggested SVB executives liquidate their portfolio of securities. The suggestion aimed to establish the need for funds before raising money. Greg Becker, the former CEO of SVB, echoed this suggestion when he testified before the Senate Banking Committee.
A Goldman Sachs spokeswoman stated that the bank encouraged SVB to seek third-party financial counsel. Additionally, Goldman Sachs informed SVB in writing that it would not serve as its advisor on the sale.
Silicon Valley Bank, with assets over $212 billion, collapsed on March 10, as per California regulators. It was the 16th-largest bank in the United States. After its business was shut down, SVB Financial Group filed for Chapter 11 bankruptcy protection on March 17. The filing aimed to facilitate a court-supervised reconstruction process for maintaining its volume.
Market investors and industry watchers are eagerly awaiting new information as the progress of the investigation. Any possible implications for Goldman Sachs and its involvement in the SVB collapse are of particular interest.