SVB Financial Group and two top executives have been sued by shareholders over the collapse of Silicon Valley Bank, as global stocks continued to suffer on Tuesday despite assurances from the US president, Joe Biden.
The bank’s shareholders accuse the SVB Financial Group chief executive, Greg Becker, and chief financial officer, Daniel Beck, of concealing how rising interest rates would leave its Silicon Valley Bank unit “particularly susceptible” to a bank run.
The proposed class action was filed on Monday in the federal court in San Jose, California.
It appeared to be the first of many likely lawsuits over the demise of Silicon Valley Bank (SVB), which US regulators seized on 10 March after a surge of deposit withdrawals.
The news came as shock waves from the collapse of SVB pounded global bank stocks further on Tuesday, with calls for calm from Biden and other policymakers doing little to reassure markets and prompting some analysts to rethink their outlook on interest rates.
“Americans can rest assured that our banking system is safe. Your deposits are safe. Let me also assure you, we will not stop at this. We’ll do whatever is needed,” Biden said on Monday.
Biden’s comments, along with emergency US measures to guarantee the deposits of SVB’s customers and shore up banks by giving them access to additional funding, failed to dispel investor worries about potential contagion across the banking sector.
Banking stocks in Asia extended declines on Tuesday, with Japan’s banking subindex leading the fall, down 6.7% in early trade to its lowest since December.
“Bank runs have started [and] interbank markets have become stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Arguably, liquidity measures should have stopped these dynamics but Main Street has been watching news and queues – not financial plumbing.”
Rating agency Moody’s on Monday downgraded the debt ratings of the collapsed Signature Bank deep into junk territory and placed the ratings of six other US banks under review for a downgrade.
The banks placed under review for downgrade were First Republic Bank, Zions Bancorporation, Western Alliance Bancorp, Comerica Inc, UMB Financial Corp and Intrust Financial Corporation.
Moody’s, which rated Signature Bank’s subordinate debt “C”, said it was also withdrawing future ratings for the collapsed bank.
In Monday’s lawsuit, shareholders led by Chandra Vanipenta said Santa Clara, said California-based SVB failed to disclose how rising interest rates would undermine its business model, and leave it worse off than banks with different client bases.
SVB had surprised the market two days earlier by disclosing a $1.8bn after-tax loss from investment sales and that it planned to raise capital, as it scrambled to meet demands from customers who wanted to access their deposits.
SVB had an estimated $209bn worth of assets and $175.4bn worth of deposits before its collapse, in the largest US bank failure since the 2008 financial crisis.
Its collapse has sparked fears that other banks could be vulnerable to rising interest rates through an over-exposure to falling bond prices.
The lawsuit seeks unspecified damages for SVB investors between 16 June 2021 and 10 March 2023.
SVB said on Monday it will explore strategic alternatives for what remains of the company, now shorn of its main banking business.
The FDIC on Monday named Tim Mayopoulos, the former chief of Fannie Mae, as the chief executive officer of Silicon Valley Bank. According to TechCrunch, a statement sent by Mayopoulos to clients said the bank is “conducting business as usual”.