SVB Financial Group, the bankrupt former owner of Silicon Valley Bank, received court approval to sell its investment banking arm for $100 million. The unit was acquired by SVB Financial Group four years ago for $280 million.
The buyers, including Jeff Leerink and his management team, are involved in the sale. Leerink founded the investment advisory and remained in charge after the bank holding company’s acquisition. The sale is supported by Baupost Group, an additional backer.
Initially Declined by Judge Glenn
US Bankruptcy Judge Martin Glenn initially declined to approve the sale due to released executives’ potential lawsuits. After imposing certain restrictions on the legal releases, Glenn signed an order approving the sale.
The addition of restrictions to legal releases addressed concerns raised by Judge Glenn. He ultimately approved the sale after the modifications were made. The bankruptcy proceedings and sale occur in the Southern District of New York.
Bankruptcy and Legal Hurdles
In March 2023, SVB Financial filed for bankruptcy, accusing the US Federal Deposit Insurance Corporation (FDIC) of improper actions. SVB Financial’s attorney, James Bromley, informed US Bankruptcy Judge Martin Glenn about the loss of access to deposits.
Regulators seized the subsidiary to prevent a national bank run. The hearing took place in Manhattan with US Bankruptcy Judge Martin Glenn presiding. Attorney James Bromley represented SVB Financial during the hearing.
Following regulators’ takeover of its bank, SVB Financial filed for bankruptcy to repay bondholders. The bankruptcy case, known as SVB Financial Group, 23-10367, is being handled in the US Bankruptcy Court for the Southern District of New York.
As part of its bankruptcy plan, SVB Financial aimed to sell its non-banking assets, including the investment bank. The sale of the investment banking unit was a crucial component of the plan.
However, SVB Financial Group encountered legal obstacles that needed to be overcome to proceed with the sale. Fortunately, the involvement of Leerink and Baupost Group lent support to the transaction.
SVB Financial Group is actively working towards repaying its bondholders through the proceeds generated from the sale of its assets.
Dispute With FDIC
The bank-holding company has been engaged in a dispute with the Federal Deposit Insurance Corp. The dispute pertains to $2 billion in cash SVB Financial had on deposit with the bank.
Bankrupt SVB Financial Group aims to exit court protection by Jan. 1 to safeguard tax benefits for creditors. The timeline may face challenges due to a dispute with the Federal Deposit Insurance Corp. over $2 billion in deposits.
Troubles of the SVB Financial Group
Despite the ongoing investigation into potential claims against SVB Financial, the FDIC is currently holding the company’s funds. SVB Financial and two executives are facing lawsuits for allegedly concealing vulnerability to a bank run. Additionally, SVB Financial lost access to $2 billion but retains over $180 million in other bank accounts. However, Judge Glenn is willing to permit SVB Financial to utilize up to $100 million for investments.
Furthermore, California banking regulators’ closure of Silicon Valley Bank raised concerns about the banking system, ultimately leading to UBS Group AG’s takeover of Credit Suisse Group AG. Shareholders have accused SVB Financial of failing to disclose the risks associated with rising interest rates. With $3.4 billion in debt and managing approximately $9.5 billion of investors’ funds, court filings indicate that Silicon Valley Bank was SVB Financial’s largest asset, accounting for over $15.5 billion.
Allegations by Attorney Kurt Gwynne
Representing the FDIC as the receiver for Silicon Valley Bank, Kurt Gwynne has contested allegations of improper actions by regulators. The decision to freeze accounts before the bankruptcy filing was deemed appropriate to protect deposits. Despite these challenges, SVB Financial still maintains access to significant funds held in accounts at other banks.