Regulators urged to find Silicon Valley Bank buyer as industry frets about fallout (updated)

Rothschild & Co SCA

12/03/2023 09:48

(Updates with UK plans to protect depositors, from paragraph
17)
    By Lananh Nguyen and Pete Schroeder
       NEW YORK, March 12 (Reuters) - Some financial industry
executives and investors were growing increasingly concerned on
Saturday that the collapse of Silicon Valley Bank could have a
domino effect on other U.S. regional banks if regulators did not
find a buyer over the weekend to protect uninsured deposits. 
    Startup-focused lender SVB Financial Group  SIVB.O  became
the largest bank to fail since the 2008 financial crisis on
Friday, roiling markets and leaving billions of dollars
belonging to companies and investors stranded. 
    The Federal Deposit Insurance Corporation (FDIC), which was
appointed receiver, was trying to find another bank over the
weekend that was willing to merge with Silicon Valley Bank,
people familiar with the matter said on Friday.
    Reuters was unable to determine whether a deal was
forthcoming. 
    Some industry executives said such a deal would be sizeable
for any bank and would likely require regulators to give special
guarantees and make other allowances for any buyer. 
    With $209 billion in assets, the Santa Clara, California
based lender was the 16th largest U.S. bank, making the list of
potential buyers who could pull off a deal over a weekend
relatively short, they said on condition of anonymity because
the situation is in flux.
    The U.S. Federal Reserve and the FDIC were weighing the
creation of a fund that would allow regulators to backstop more
deposits at banks that run into trouble, Bloomberg reported.
    Regulators discussed the new special vehicle in
conversations with banking executives and hoped such a measure
would reassure depositors and help contain any panic, the report
said.
    However, it was not clear if regulators would have political
support to throw a lifeline to the bank, which catered to
Silicon Valley startups and investors.
    The Fed and FDIC did not immediately respond to a request
for comment. 
    The White House said on Saturday that President Joe Biden
had spoken with California Governor Gavin Newsom about the bank
and efforts to address the situation. 
    "Everyone is working with FDIC to stabilize the situation as
quickly as possible," Newsom said on Saturday. 
    
    SPOTLIGHT ON OTHER BANKS
    Some analysts and prominent investors warned that without a
resolution by Monday, other banks could come under pressure if
people worried about their deposits.  
    "The good news is it is unlikely an SVB-style bankruptcy
will extend to the large banks," risk and financial advisory
firm Kroll said in a research note. 
    However, small community banks could face issues and the
risk is "much higher if uninsured depositors of SVB aren't made
whole and have to take a haircut on their deposits," Kroll
added. 
    Silicon Valley Bank had an unusually high level of deposits
that were not covered by the FDIC's guarantees, which are capped
at $250,000. 
    Billionaire hedge fund manager Bill Ackman said in a tweet
on Saturday that failure to protect all depositors could lead to
the withdrawal of uninsured deposits from other institutions as
well. 
    "These withdrawals will drain liquidity from community,
regional and other banks and begin the destruction of these
important institutions," Ackman warned. 
    Kyle Bass, founder and chief investment officer of Hayman
Capital Management, told Reuters that the Fed needed to "arrange
a marriage" for SVB by Sunday evening, before markets opened in
Asia.
    "And they've got to assure depositors that they will be paid
in full because of this merger, and restore stability in the
banking system," he added.
    Regional and smaller bank shares were hit hard on Friday.
The S&P 500 regional banks index  .SPLRCBNKS  dropped 4.3%,
bringing its loss for the week to 18%, its worst week since
2009.
    Signature Bank  SBNY.O  dropped about 23%, while San
Francisco-based First Republic Bank  FRC.N  fell 15%. Western
Alliance Bancorp  WAL.N  tumbled 21% and PacWest Bancorp
 PACW.O  dropped 38% after those stocks were halted several
times due to volatility. Charles Schwab Corp  SCHW.N  slumped
more than 11%.
    Signature Bank, First Republic Bank, PacWest Bank and
Charles Schwab did not immediately respond to requests for
comment. Western Alliance Bank declined to comment. 
    Some banks could look to preemptively raise capital to
fortify their balance sheets or try to strike deals of their
own, industry executives said. 
    When IndyMac and Washington Mutual collapsed in 2008, the
FDIC found other firms to take on the assets and keep deposits
intact. If no buyer is found for SVB, uninsured depositors will
probably be left with a portion of whatever funds the FDIC can
raise selling off the bank's assets.

    GLOBAL DOMINOES 
    In the UK, where SVB has a local subsidiary, finance
minister Jeremy Hunt said on Sunday he was working with Prime
Minister Rishi Sunak and the Bank of England to "avoid or
minimise damage" resulting from the chaos that has engulfed the
lender.
    "We've been working at pace over the weekend, through the
night," Hunt told Sky News. "We will bring forward very soon
plans to make sure people are able to meet their cashflow
requirements to pay their staff."
    More than 250 UK tech firm executives signed a letter
addressed to Hunt on Saturday calling for government
intervention, a copy seen by Reuters shows. 
    Advisory firm Rothschild & Co is exploring options for
Silicon Valley Bank UK Limited as insolvency looms, two people
familiar with the discussions told Reuters on Saturday. The BoE
has said it is seeking a court order to place the UK arm into an
insolvency procedure. 
    Some experts, however, see the fallout from the latest
collapse as limited.
   "We do not see this as the start of a broader threat to the
safety and soundness of the banking system," TD Cowen analyst
Jaret Seiberg said on Friday. "Silicon Valley had a unique
business model that was less dependent on retail deposits than a
traditional bank."  

 (Reporting by Lananh Nguyen, Paritosh Bansal, Tatiana Bautzer,
Nupur Anand and Ira Iosebashvili in New York and by Pete
Schroeder and Jason Lange in Washington, Kanjyik Ghosh and
Akanksha Khushi in Bengaluru and by Andrew MacAskill, William
Schomberg, Amy-Jo Crowley and Pablo Mayo in London; Writing by
Megan Davies; Editing by Jamie Freed)
 ((Lananh.Nguyen@thomsonreuters.com; +1 (646) 696 4829;))