Goldman Sachs under federal investigation over role in SVB collapse, reports

Investing

The Securities and Exchange Commission and Federal Reserve have launched an investigation into Goldman Sachs’ role in buying securities from Silicon Valley Bank weeks before the California bank’s abrupt collapse in March, the Wall Street Journal reported Thursday–the latest investigation into the biggest bank failure since the Great Recession.
SPAIN – 2022/03/23: In this photo illustration a Goldman Sachs Group logo seen displayed on a smartphone with a Goldman Sachs Group logo in the background. (Photo Illustration by Thiago Prudencio/SOPA Images/LightRocket via Getty Images)
Key Takeaways
  • The SEC and Federal Reserve are reportedly seeking documents into Goldman Sachs’ role in purchasing $21 billion of SVB’s securities portfolio as the hamstrung regional bank was looking to shore up cash and find a potential buyer, as well as Goldman’s role in allegedly advising SVB in raising capital, sources told the Journal.
  • Federal investigators will also probe whether Goldman’s trading and banking divisions were improperly communicating, and whether the banking behemoth advised SVB to sell its portfolio—SVB executives reportedly decided to sell its securities to Goldman without seeking other buyers out of fear of market repercussions.
  • Goldman Sachs did not confirm the investigation, though a spokesperson told Forbes it had informed SVB before the sale of its securities portfolio that it would not act as its advisor in the sale and that SVB should hire a third-party financial advisor.
  • The spokesperson said Goldman Sachs is “cooperating with and providing information to various governmental bodies in connection with their investigations.”
  • The Department of Justice also issued Goldman Sachs a subpoena in its separate investigation into SVB’s collapse, sources told the Journal.
Tangent

The Justice Department and SEC reportedly launched separate investigations into SVB just four days after the bank’s dramatic collapse in March, when California’s financial regulation closed the bank, though sources told multiple outlets the investigations will likely not lead to charges against the failed bank.

Key Background

Silicon Valley Bank’s collapse in March was the biggest bank failure since the start of the Great Recession 15 years earlier. The collapse at the Santa Clara, California-based firm came as its investments in debt, including U.S. Treasuries and securities lost value as the Federal Reserve hiked interest rates to combat rising inflation. Days before its failure, the bank suffered a swift bank run as depositors withdrew their money.

Shares plummeted following the bank’s sale of $21 billion in securities in a quick move to build cash and as it looked for a potential buyer, though it lost $1.8 billion in the process. Its failure—the first of a few over the span of several weeks, including Signature Bank and Silvergate Capital—has been attributed to an array of issues: Democrats blamed it on Congressional Republicans’ loosening of banking regulations in 2018, though major Republicans, including former President Donald Trump, have rebuked that, with Trump’s spokesperson Steven Cheung accusing Democrats of trying to “gaslight the public to evade responsibility.”

This story was first published on forbes.com and all figures are in USD.

More from Forbes Australia