Silicon Valley Bank’s parent company filed for bankruptcy protection on Friday, a week after the tech lender was taken over by federal regulators following a 36-hour surge of depositor withdrawals that triggered the worst bank collapse since the financial crisis.
SVB Financial Group filed for chapter 11 protection on Friday in New York bankruptcy court where administrators will set about selling off assets to meet creditors claims.
The failed Silicon Valley Bank, which is now under the control of the Federal Deposit Insurance Corporation (FDIC), is not part of the bankruptcy. Instead, court-appointed administrators will unwind an investment management arm, SVB Capital, investment bank SVB Securities and wealth manager SVB Private.
A number of hedge funds and asset managers have bought discounted bonds issued by SVB Financial, according to the Wall Street Journal, despite warnings from federal officials that investors will probably be wiped out.
Typically, assets sold through bankruptcy go to creditors. In this case, however, investors in SVB Financial, which holds around $2.2bn in cash and liquid securities, $3.3bn of bond debt and $3.7bn of preferred stock, may need to help cover losses at SVB.
William Kosturos, SVB Financial restructuring officer, said the bankruptcy process would allow the group “to preserve value as it evaluates strategic alternatives for its prized businesses and assets”.
The bankruptcy filing comes a day after Wall Street’s biggest banks announced a $30bn deal to prop up First Republic, another mid-sized bank whose depositors fled, scared off by the recent banking crisis.
The move, coordinated with US regulators, was meant to act as a firewall by protecting First Republic and stopping the rout spreading to other mid-sized banks. First Republic’s share price rallied on Thursday on news of the deal but fell sharply on Friday as jitters about the health of the baking sector re-emerged.