Goldman Sachs May Be Getting a $100 Million Payout Over the Silicon Valley Bank Collapse

Robb Report ^ | 3/15/23

[EBH]

One of the biggest financial stories of the moment is the collapse of Silicon Valley Bank. And now Goldman Sachs is being pulled into the drama.

The investment bank is set to receive more than $100 million dollars after the failure of SVB, The New York Times reported on Wednesday. That’s because Goldman bought $21.4 billion of debt from the beleaguered bank, which came at a loss of $1.8 billion to SVB. (A spokesperson for Goldman declined to comment to the Times.)

Let’s step back a bit: In early March, Moody’s told SVB privately that it was facing a potential downgrade. In response, the bank reached out to Goldman for advice on how to right the ship. The plan to make SVB viable included both raising capital and buying debt, but neither action was enough to ultimately save the bank from collapsing—and the buying of debt actually led to concerns about the bank’s viability and resulted in its failure, the Times wrote.

Now Goldman’s role in the whole ordeal is coming under scrutiny, as the investment bank stands to profit from SVB’s failures. While working to help raise capital, Goldman gave SVB the chance to hire another adviser to work on the bond deal, but SVB decided to go ahead with Goldman on both fronts, the Times reported. That’s not necessarily uncommon, but it has led people to ask questions about Goldman’s involvement and whether it worked in an “arm’s length manner” to keep some separation between the various teams.

It is possible that the $100 million fee doesn’t get paid out to Goldman.

[DannyTN]

“Payment priority is given to depositors over general unsecured creditors. Typically, after the FDIC recoups administrative costs and insured depositors are paid, customers with uninsured deposits are paid before any general unsecured creditors or equity shareholders.”

But SVB had $34B more in assets than deposits. They just weren’t liquid assets. So Goldman will probably get paid their fee.

[Lonesome in Massachussets]

Those illiquid assets were not worth the $34B paper they were written on, which is why SVB went bust, and could have not have paid the depositors off. If the market determined rate of return on a certain security, say, I dunno, Treasury Bills with a maturity date, changes 1% to 4% the present value of the security changes from 90.6% of face value to 67.7% of face value. The present value of the $34B face value asset changes from $31B to $23.B. The asset has lost $8B in real value.

[unread]

That old song about, "The get rich and the poor get poorer" is going to make a comeback. Maybe a LOT of songs out of the 30's will be making a comeback....

Brother, can you spare a dime.....

[Governor Dinwiddie]

"Heads, I win; tails, you lose."

[KC Burke]

For me the question is, did the Goldman advice and fee bring about the collapse more than the supposed cause that was immediately floated: Treasuries being sold early at a loss to cover a moderate spiking of withdrawals?

[Vaduz]

Sounds like Goldman Sachs seen what was coming down the pike invest and wait then cash in.

Big business isn’t for the weak of mind.

[dfwgator]