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US authorities probe Goldman Sachs’ role in SVB collapse

Goldman Sachs’ work for Silicon Valley Bank is being reviewed as part of government investigations into the tech-focused bank’s collapse in March, the Wall Street bank disclosed on Thursday. 

Goldman has been criticised for its dual role with SVB, both as a buyer of $21bn in securities sold by the California-based lender and as an adviser on a failed equity raise for the bank days before SVB failed.

The bank said it was co-operating with and providing information to “various governmental bodies” in connection with investigations and inquiries into SVB, in a filing with the Securities and Exchange Commission. This included Goldman’s “business with SVB in or around March 2023, when SVB engaged the firm to assist with a proposed capital raise and SVB sold the firm a portfolio of securities”.

In the days after SVB’s collapse, top congressional Democrats called for a federal investigation into Goldman’s role and urged regulators to examine whether the investment bank’s profits handling the $21bn trade for SVB should be repossessed.

The examination of Goldman’s role highlights the continuing postmortem into the sudden collapse of SVB, at the time the second-largest US bank failure ever, with US prosecutors and the SEC investigating the failure since March. 

In addition to the government investigations in SVB, Goldman is among the underwriters named as defendants in a class-action lawsuit filed by investors who alleged that several stock and debt offerings by SVB in 2021 and 2022 “contained material misstatements and omissions”. 

SVB was taken over by the US government in early March following a run on the bank amid concerns about its ability to honour its deposits — more than 94 per cent were uninsured — because of losses in its portfolio of long-dated US Treasuries. 

SVB had hired Goldman in late February to help it bolster its capital position as the bank readied for a downgrade from credit rating agency Moody’s. Goldman drew up a plan to raise new capital for the bank and also agreed to buy part of SVB’s portfolio of Treasuries and other government-backed debt.

SVB said it had sold the portfolio of $21.45bn worth of securities to Goldman “at negotiated prices” in a sale that generated a $1.8bn loss for SVB. Goldman ultimately abandoned the capital raise as SVB’s share price plunged and the run on its deposits intensified.

The two transactions would have been handled by separate parts of Goldman. 

The collapse of SVB sparked runs at several other banks that helped contribute to the collapse of First Republic and reignited fears about financial stability.

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