Dive Brief:
- Goldman Sachs should detail the profit it made while serving as both a buyer of Silicon Valley Bank’s bond portfolio and adviser of the failed capital raise that preceded its collapse, Sen. Elizabeth Warren, D-MA, wrote in a letter to the investment bank last week.
- Warren accused Goldman Sachs of profiting “at nearly every stage of Silicon Valley Bank’s collapse,” a failure that set in motion a crisis of confidence in the banking industry this year.
- The letter comes as federal agencies are looking into the Goldman’s business dealings in the lead-up to the regional lender’s collapse in March.
Dive Insight:
“Your bank’s dual roles meant that not only were you buying SVB’s debt portfolio at a discount, you were also raking in fees as the underwriter for the failed $2.25 billion capital raise that doomed SVB,” Warren wrote in a letter addressed to Goldman Sachs CEO David Solomon.
Facing a liquidity crunch, SVB sold Goldman Sachs a $24 billion portfolio of securities at a $1.8 billion loss in an effort to shore up capital. The bank then tapped Goldman to assist it with a $2.25 billion capital raise from General Atlantic and other investors to make up the shortfall.
The bank disclosed the loss and capital raise to investors March 8, which spooked depositors, who then tried to withdraw more than $42 billion the following day.
SVB was taken over by federal regulators March 10, and since that time, Signature Bank and First Republic have also failed, and investor confidence among regional lenders has suffered.
Goldman benefited from the collapse of SVB and subsequent market turmoil, according to Warren, who claimed the bank’s failure increased the value of the discounted bond portfolio by an estimated $100 million.
A source close to the bank told Banking Dive the firm has said for months that it expects the proceeds from the portfolio sale to be closer to $50 million, not $100 million.
"We're reviewing the letter. But it's well known that banks don't collect fees when capital raises are canceled," Goldman spokesperson Tony Fratto told Banking Dive. “SVB engaged Goldman Sachs to assist with a proposed capital raise and sold the firm a portfolio of securities. Prior to that sale, Goldman Sachs informed SVB in writing that we would not act as their advisor on the sale, and that SVB should not rely on any advice from the bank in this regard, but instead hire a third-party financial advisor."
Warren called on the bank to respond to her letter by July 13.
“The failure of SVB was a failure of the entire system — regulators who were asleep at the wheel, SVB executives who engaged in shady backroom deals, and big banks like yours that profited from SVB’s troubles and are now seeking to use accounting tricks to avoid replenishing the federal deposit insurance fund,” she wrote. “The American people, and your customers, deserve a full accounting of your dual role in SVB’s collapse, and the steps you plan to take to ensure crises like this don’t happen again.”
Meanwhile, the investment bank disclosed in a Securities and Exchange Commission filing in May that the bank’s business dealings with the failed firm are the subject of a federal probe.
