Silicon Valley Bank Shareholders Suing CEO and CFO for Fraud
SVB collapse only ‘the tip of the iceberg’ under Biden’s inflationary fiscal policies.
It was a busy day in the fiscal world today after the “not bailout-bailout” by the federal government in the wake of the Silicon Valley Bank (collapse).
SVB Financial Group and its two top executives have just been sued by shareholders who accused them of concealing how rising interest rates would leave its Silicon Valley Bank unit “particularly susceptible” to a bank run.
The proposed class action against SVB, Chief Executive Greg Becker and Chief Financial Officer Daniel Beck was filed 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, which U.S. regulators seized on March 10 following a surge of deposit withdrawals.
SVB had surprised the market two days earlier by disclosing a $1.8 billion after-tax loss from investment sales and that it planned to raise capital, as it scrambled to meet redemption requests.
Several regional banks saw their share prices plummet after SVB’s collapse shook investor confidence in mid-sized banks.
Shares in San Francisco-based First Republic Bank fell by over 60 percent on Monday, while Western Alliance Bancorp, headquartered in Phoenix dropped by over 47 percent, two of the worst-performing banks of the day.
New York-based Metropolitan Bank slid by nearly 44 percent, PacWest Bancorp in Los Angeles fell by over 21 percent and the Memphis-based First Horizon fell by over 20 percent.
…Experts feared that the fall of Silicon Valley Bank could shake investor and consumer confidence in regional banks, and compel depositors deciding to pull their money from the mid-sized institutions and putting it into seemingly safer Wall Street banks that are “too big to fail.”
Federal officials tried to alleviate that anxiety by backstopping all of the uninsured deposits at Silicon Valley Bank, using an insurance fund with over $100 billion in reserves to finance the safety net. The move by federal officials goes above and beyond the federal insurance issued by the Federal Insurance Deposit Corporation of up to $250,000 per depositor.
US banks lost $100 billion in worth during trading on Monday….after Biden patted himself on the back to resolve the bank crisis.
Trading was intermittently halted on at least 20 regional banks as the velocity of money forced regulators to intervene. The Big Four of US banks were also drawn into the bloodletting. Citigroup’s share price dived 7.45 percent, Wells Fargo sank 7.1 percent, Bank of America plunged 5.8 percent and JP Morgan fell 1.8 percent.
Among the worst affected regional banks were First Republic which fell by 62 percent, Western Alliance which closed with a loss of 47 percent and KeyCorp which dropped by 21 percent.
The declines struck the Street despite Joe Biden making an intervention minutes before the market opened to claim that ‘Americans can have confidence that the banking system is safe’.
On the other hand, former Trump White House adviser Steve Moore said Silicon Valley Bank’s collapse might be the “tip of the iceberg” for the financial system and identifies inflation-causing Bidenflation as the root cause.
I agree with the president that we don’t have an overall banking crisis. The system is sound, but I do think you have a lot of major banks that are in some trouble. And SVB, the Silicon Valley Bank, may just be the tip of the iceberg here. And I think it’s important for people to understand how this potential banking crisis happened.
It’s not because there aren’t enough bank regulators, as Biden is trying to say. It’s because of the massive inflation and the trillions and trillions of dollars of borrowing that the federal government has done that has put our financial system in great jeopardy and great peril.
You can’t just keep doing this month after month, year after year, borrowing trillions and trillions of dollars. And so what happened, because of the Biden spending and debt policies, is that not only did inflation go up, but interest rates have gone up. Harris, as you know, the Fed has had to raise interest rates eight or nine times, and they’re talking about more interest rate increases to come. And that’s caused a lot of financial problems for these big banks is the interest rates go up.
Unfortunately, that means Biden’s administration will back off from quelling the inflation it created.
“The Fed has now lost the luxury of being almost single-mindedly focused on the fight against inflation,” said Frances Donald, global chief economist and strategist for Manulife Investment Management. “There was always going to be an inflection point when the costs of the rate hikes outweighed the benefits. The Fed has to consider that we’re much closer to that moment than before.”
While Biden’s team remains in charge of the fixes, the iceberg will be glacier-like in size.
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Comments
Uh… in 2008 I was reliably informed by Obama that these gigantic financial institutions were ‘too big to fail’ – and he would never tell a lie.
That remains as THE fundamentally flawed feature of our economic system. The money center banks are too big. And much of their business is based on very dark international trading (money laundering).
In 2008 none of banked by phone. Today, I can empty my account and transfer the entire deposit to another institution with just a few clicks.
We can create a bank run and crush and institution in minutes.
Uh, no. This was not an organic panic simply because it was a Thursday. This was fraud and corruption on a massive scale by insiders.
What was the fraud? The info on assets, liabilities and composition of SVB investment portfolio was all in the annual report available to view.
It wasn’t fraud so much as it was extremely poor risk management of their portfolio and a decision to reduce cash on hand by putting those reserves to work in Treasuries and mortgage backed securities.
“Extremely poor risk management.”
That’s akin to concluding Bankman-Fried ‘misplaced’ crypto dollars for investors in FTX.
“Extremely poor risk management” under the fiduciary responsibilty to investors and depositors can and should be called fraud.
LB,
SVB had far too much of their portfolio tied up in long duration US Treasuries and Mortgage Backed Securities. That’s a far cry from what was happening at FTX.
Fraud has a legal meaning and definition. The term is applicable to what was happening at FTX but not at SVB based on what we know.
I hate to break it to you but every bank has some of the same problems with their portfolio relative to newer, higher yielding issues that SVB had. The difference is the % of longer v shorter term instruments held.
SVB had too many longer term instruments which made them vulnerable to rate hikes reducing the market value of those instruments IF they had to sell them to raise cash to meet depositor redemption request.
By all means beat up SVB for stubborn complacency and being concerned about woke BS. At the end of the day being stupid doesn’t make them guilty of fraud. The portfolio holdings were in the annual report.
The fraud is presenting themselves as Chief Executives and Board of Directors and leading shareholders to believe that they would honor their fiduciary duties. They were explicitly negligent of their duties to the point that all they could talk about was their commitment to ESG even during an analyst call when asked to explain their curious losses. This is a very serious legal issue.
Presenting yourselves as bank managers but running the bank as a political base of operations to further Marxism is FRAUD. Only one board member had any bank experience at all. They were there for their politics and political connections. Management? What a joke. They didn’t even have a Chief Risk Management Officer.
That’s a very expansive definition you have. I’m gonna politely pass on that one.
I wouldn’t characterize investing money in 10yr Treasuries as “poor risk management” In fact, much the opposite. The problem was the trillions of dollars that were thrown into the economy and banks having no way to do anything with it, there was just too much money to invest in start-up’s since the economy slowed due to the Fed’s rate hikes decreasing the IPO’s which was SVB’s bread and butter. If SVB had just sat on the money everyone would have been screaming about making nothing on their money and pulled it out causing the bank to collapse which is what happened anyways.
diver64,
The problem with piling into Long duration Treasury instruments v shorter term Treasury instruments is it locks in the yield. Buying a bunch of five or ten year Bond v 2 year Bond or less than one year duration T Bills basically ties the hands of the investor.
Example buy a ten year and receive X interest on a fully guaranteed investment. Problem comes when interest rates go up. Now the market value drops b/c newer ten year issues have a higher rate.
If you need to sell the older, lower yielding ten year before maturity you will lose $. That’s what happened here.
The problem wasn’t that SVB had a bunch of Treasury instruments it was the mix of duration; weighted on the long end carrying interest rate risk. Plus less actual cash on hand.
Those two things constrained the ability of SVB to accommodate withdrawal by depositors more than it should. It created a run which led to collapse.
but, but, it is run by all democrats, not even a RINO on the board
What are a few bank runs compared to the importance of planning LGBTQ events?
https://www.westernjournal.com/risk-assessment-chief-risk-assessment-chief-major-failed-bank-organized-lgbt-pride-events-safe-spaces-everything-collapsed-reportmajor-failed-bank-organized-lgbt-pride-events-sa/
If you read the linked article you find out that there was no chief risk assessment officer from April of last year to January of this year. And the chief risk officer for Europe, Africa and the Middle East, who identifies as “queer person of color from a working-class background”, was too busy planning LGBTQ events to bother with doing her job.
She was doing precisely what she was hired to do. Her title was a mere detail. Hardly relevant to anything.
I am going to repost the link to the “Just the News” article:
https://justthenews.com/accountability/svb-knew-150-million-investment-losses-and-still-doubled-down-woke-agenda-despite
This is the CEO of SVB openly displaying his contempt for shareholder rights and his fiduciary duty to maximized shareholder profit. IMO, this is criminal activity. This is no different than what Musk discovered at Twitter. Management and the Board should be held PERSONALLY liable. ESG and fiduciary duty are incompatible mandates.
This is very definition of ESG Marxism and why it should be criminalized. We already have political avenues for resolving political issues. It’s called government. ESG is unconstitutional.
I’m not sure there is a link between those abhorrent activities and the collapse of the bank which seems to have been driven by excess deposits due to the trillions of Covid money blown into the system and very bad investment decisions on the part of SVB on what to do with it. When Powell and the Fed are singing from the rooftops that they are going to raise interest rates until it hurts, buying long term Govt securities seems like guanteed way to lose money
Once upon a time, there were guides out ( like the Michelin guide) for banks. Once we had the 100k FDIC we don’t need to worry about doing homework anymore the bloated government would take care of the problem.
Word is Peter Thiel began the run in the bank, told
His buddies
To
Get their money out. Don’t have a link heard on podcast No Agemda
The story is Thiel had some issues/delay on transactions and that caused him to look deeper. When he saw the mismatch of assets/liabilities and mix of securities at SVB he pulled out his firms deposits and warned his friends about what he found. No different from what you or I might do, though the amounts withdrawn certainly are.
No dog in this fight and I didn’t DV you. However, Peter Thiel is not an insider at SVB and thus can withdraw his money as he pleases.
I have read that in several different places and not left wing hyper partisan blogs either. Thiel sure saw something but then again, he isn’t a billionaire for nothing.
One point that seems to be missing in the articles and comments looms large:
When you put money into the bank, make a deposit, you become an unsecured creditor of the bank.
Because of prior history we developed the FDIC to create a method to provide a guarantee on deposits up to certain limits which have increased over time to $250K. Amounts above that level do not enjoy any sort of explicit or implicit security from anyone. The depositors funds above the FDIC limit get in line with all the other unsecured creditors when a bank fails and goes into receivership though they do have a better place in the order of payment.
Any prudent risk manager would ensure funds are placed in a ‘sweep account’ which spreads the money around multiple institutions in order to protect it all.
Supposedly smart tech, VC and the business that service them put all their eggs in one basket at SVB.
I heard that many companies did have their cash swept into money market funds at Blackrock, Morgan Stanley and elsewhere but that this cash was still inaccessible because those accounts were in SVB’s name.
I don’t know if this is 100% true but I heard it from numerous sources including some companies. We never got to see if these “outside” sweep accounts did, in fact, provide protection because of the actions by the Feds.
Also, I think donating $73,450,000 to BLM is a very significant amount of money for a bank to donate to a violent racist organization. That’s almost as much as Nike’s $90.000.000 and they are a much larger international company.
https://dc.claremont.org/blm-funding-database/
Search that database. You will be shocked. Corporations donated at least $82,889,408,433 as far as can be documented. You can bet it is more. What a racket.
But the ‘goodwill’ gained is priceless./S
They should be sued. They knew full well about the interest rate environment and chose not to change course. Instead they bragged about the number of women, minorities and gays on their board.
I’m beginning to realize that we ultimately will never be able to detect the divide between companies that are run badly by “old professionals” who pander to the woke to attract business, and companies that are run badly by “new professionals” who were brought up woke and think reality actually works this way.
I’m beginning to think that you have a rather subtle turn of mind.
Fraud? I doubt it. First of all, SVB only loaned out 40% of their deposits. That is pretty conservative, and even if those loans were carelessly written, that would in no way cause the bank to collapse.
What did? The remaining 60% was in government bonds. Again, a very safe and conservative investment. However, not when you have Socialists in charge of the country. The Biden inflation — driven by energy policy — resulted in the Feds raising interest rates. When that happened, all the bonds that SVB held became worthless overnight. When 60% of you deposits tank, then you get a collapse.
The bank should have warned its billionaire depositors that Biden’s economic and energy policies — which the depositors gleefully voted for and donated — would lead to the devaluation of the currency?
They knew. But they also knew that Biden would step in to protect them.
So far, this sounds like the most accurate reprise of what we have been told… so far.
The bank didn’t fail — the US treasury did.
Indeed. Poor fiscal policy during Covid by the Uniparty which included Trillions of spending and a complete disaster of all Policy by Brandon led directly to this. What would you expect from an Administration based on woke quota boxes and not on competence?
Yes, these people should be sued. They abrogated their fiduciary responsibility and should go to prison.
Any and all corporate officers who are infected with the woke mind virus should be similarly sued into oblivion.
A victim of their own liberal fiscal policies and democracy, transfiduciary responsibility, and Green deals to come, but renewable profits not realized.
More interestingly, it is now being reported in numerous outlets that there was a buyer lined up for SVB but that the Biden administration did not approve of the proposed buyer and shot the deal down via the FDIC.
They apparently had a short list of “approved” buyers and this firm was not on it.
Had this transaction gone through there would have been no depositor bailout needed.
“Commerce clause” my shiny metal ass.
What I have read is that were several interested with Goldman Sachs buying it’s bond portfolio and HSBC buying it’s UK operations for $1. There were several interested in buying SVB but the value was crashing so fast with the Bond Losses that a concrete figure of the net worth couldn’t be calculated. It was only direct action by the Fed that finally allowed a couple to step in with offers.
SVB has an important China-Biden connection, which explains why SVB’s depositors are getting a full bailout over and above the FDIC $250k limit. CNBC has reported that “[m]any China-based startups with U.S. venture capital funding have bank accounts at SVB.” It looks like Biden directed Yellen to make his Chinese folks whole with U.S. taxpayer funds, regardless of FDIC limits.
Has Biden Admin missed a single opportunity to screw the U.S. taxpayer?
The big question is: How much of SVB’s 200 billion assets are its own shares bought back with customer deposits?
The second crucial question is: How much did the directors of SVB buy its shares for before starting the purchase of shares with clients’ money? And how much did they sell their shares for?
Pocahontas Warren says in an Op Ed at the NYT that it’s all Trumps Fault abetted by Republicans and only she was standing on roof tops shouting into the void as a voice of reason. But then again, she has always been the heroine in her own play.
When you run a “bank” like a start-up, you run the same risks as a start-up. (SV “bank.”)
Kinda like when you run a “bank” like a hedge fund, you run the same risks as a hedge fund. (Everybody on Wall Street into 2008.)
As we saw with the last spasm, when you run a “bank” like a speculative commodity exchange, you run the same risks as a speculative exchange. (SBF, and his pseudo- crypoto- “Bank”, or something.)
And when you run a “bank” like a virtue-signaling slush fund, you run the same risks as a virtue-signaling slush fund. (90% of cleantech startups hold their accounts at Mandated Industrial Policy bank of the cool kids. Read that one? They eco-warriors are whining.)
What do these things have in common; one crisis after another, in different ways? When the political class has to emergency intervene, that’s not a bug, it’s a feature. (Like the ‘rona; if it hadn’t occurred naturally, they’d have had to invent it.)
So, they should maybe be suing some different people. Or perhaps “also” be suing some additional people.
And a few more of the miscreants; this is banking spasm 5 if your include the other bank just now in the count, 6 if you include Wells Fargo a couple years back. In the Fibonacci sequence, entry 6 has value 8. Wonder if throwing that many under the bus will get the apparatcheck’s attention, or we have to go a few more rounds.
The sequence continues: 13, 21, 34, 55. I modestly propose that the 10th time this happens — I’m confident they’ll get there — 55 get fired and sued, taken from the top down equally apportioned to bank C-suite and regulators. The odd number left-over we split: somebody from one side just gets sued, somebody from the other just gets fired. After we pick-em, they can flip a coin for who gets what treatment.
There are too many other banks being swept up in this chaos today. The global banking system is again teetering on the brink of failing like in 2008. The Treasury and Congress are only going to make things worse and the Fed is now damned if it does and damned if it doesn’t. If they raise rates again, the market continues to tank and more banks fail. If they don’t raise rates and inflation continues to rage out of control, the economy itself collapses.
There IS a solution for this but absolutely no one will consider it. Bank holiday until Congress STOPS SPENDING!!!! This is probably why they suspended the debt limit discussions until June, they probably were waiting for the stock market AND bond market to collapse. Okay? NOW are we going to slash government spending. It’s time for McCarthy to demand those negotiations to begin right now!!! Hello? Brandon? McConnell? Are you guys even alive?
Un-possible.
I was reliably informed that Big Chief Regulator’s thousand-pages of finance regulation eliminated all systemic risk. That was the point, right?