Is The Silicon Valley Bank Auction Sequel Poised To Fail?
Rare are the times when a sequel to a movie gets to outperform the first installment–most especially when the initial one bombed.
In an attempt to make Silicon Valley Bank (NASDAQ: SIVB) clients whole, regulators are reportedly planning to take another crack at auctioning the failed bank after the first auction failed over the weekend.
According to people familiar with the briefing and notes on the discussion reviewed by The Wall Street Journal, officials from the Federal Deposit Insurance Corp. (FDIC) told Senate Republicans on Monday that they had more flexibility to sell the firm now that regulators had declared its failure a threat to the financial system.
By designating the firm as systemic, regulators get more leeway in covering all depositors at the failing bank, including those with deposits exceeding the standard $250,000 insurance maximum. According to former regulators, the move also provides regulators the opportunity to offer would-be buyers deal sweeteners such as loss-sharing arrangements.
During the weekend, the FDIC sought to locate a buyer for the failing bank’s assets. PNC, which first showed interest, chose not to put a formal proposal after doing due diligence, according to CNBC.
While none of the largest US banks bid on SVB at a failed auction on Sunday, at least one other institution made an offer, which was rejected by the FDIC, authorities told lawmakers on Monday.
READ: What Happened at Silicon Valley Bank?
Meanwhile, HSBC has acquired collapsed Silicon Valley Bank’s UK unit for £1, in a symbolic move to rescue the tech lender following the biggest bank collapse since the 2008 Financial Crisis over the span of a weekend.
Observers are speculating on the reasons why the first auction was a failure. Richard Escobedo, a Face The Nation producer, tweeted that there are two reasons he gathered “after talking to sources.”
The first reason is a lack of clean bids, as bidders wanted to be assured that the government would guarantee protections on potential losses after taking on Silicon Valley Bank. The second pertains to politics as there “is an extreme cadre of the left on Capitol Hill that… is sort of religiously opposed” to bank mergers and acquisitions.
The recent failures of Silicon Valley Bank and Signature Bank — the second- and third-largest bank failures in U.S. history — have many worried about a contagion impact in the broader financial industry.
On Friday, the FDIC seized Silicon Valley Bank after a run on deposits thwarted its efforts to obtain new capital and shore up its finances.
The Federal Reserve, FDIC, and Treasury Department announced a proposal to protect uninsured depositors at Silicon Valley Bank and Signature Bank on Sunday evening. In addition, the Fed offered an additional funding facility for failing banks.
While the regulators were optimistic on a fast sale of Silicon Valley Assets–putting up an auction shortly after seizing the bank–the move came up empty on its first attempt.
Information for this briefing was found via The Wall Street Journal, CNBC, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.