Goldman Sachs investigated for involvement in failed Silicon Valley bank fundraising.

Goldman Sachs Under Federal Investigation for Role in SVB Collapse

The collapse of Silicon Valley Bank (SVB) in March has led to a federal investigation into the role played by Goldman Sachs Group (GSG) in the bank’s failure. The US investment bank has confirmed that it is cooperating with the investigation and providing information to various government agencies. The Justice Department and the Securities and Exchange Commission are reviewing the causes of the collapse, including the role played by Goldman Sachs.

The Collapse of SVB

SVB was seized by the Federal Deposit Insurance Corporation (FDIC) on March 10, following a run on the bank amid concerns regarding its ability to guarantee its customer deposits. The bank was unable to make assurances to its depositors due to losses in its portfolio, which consisted of long-dated US Treasuries made worthless by surging interest rates. The collapse of SVB sparked runs at other banks which ended up contributing to the collapse of First Republic and Signature Bank, raising uncertainty over US financial stability.

Goldman Sachs’s Role

Goldman Sachs has been criticised for its decision to purchase billions in securities from SVB and to act later as an adviser on the attempted bond purchase just days before the bank failed. Democrat lawmakers in Congress immediately called for a federal investigation into Goldman’s relationship soon after the collapse and demanded that regulators examine whether the investment bank’s profits handling the $21.45 billion trade for SVB should be repossessed.

The Transactions

SVB hired GSG in late February to help boost its available liquidity after the bank anticipated a downgrade from credit rating agency Moody’s that would have pushed it to the brink of junk-bond status. The investment bank formulated a plan to raise new capital for the bank by agreeing to buy part of SVB’s portfolio of US Treasuries and other government-backed debt. SVB then offloaded $23.97 billion in Treasuries to Goldman at “negotiated prices,” generating $1.8 billion in losses. GSG’s agreement to underwrite the regional bank’s bond portfolio allowed it to pocket fees from selling the portfolio back into the market at a higher price.

Conclusion

The reverberations of the collapse of SVB spread to Europe, causing a downward spiral in Credit Suisse Group’s share prices, which resulted in a forced takeover by rival UBS Group, orchestrated by the Swiss government. The investigation into Goldman Sachs’s role in the collapse of SVB is ongoing, and the investment bank is cooperating with the authorities.

• Goldman Sachs is under federal investigation for its role in the collapse of Silicon Valley Bank (SVB).
• The collapse of SVB sparked runs at other banks, contributing to the collapse of First Republic and Signature Bank.
• Goldman Sachs has been criticised for its decision to purchase billions in securities from SVB and to act later as an adviser on the attempted bond purchase just days before the bank failed.
• The investigation into Goldman Sachs’s role in the collapse of SVB is ongoing, and the investment bank is cooperating with the authorities.