SVB Financial sues US regulator for $1 billion – 7/10/2023 – Market

Silicon Valley Bank parent SVB Financial Group has sued the US Federal Deposit Insurance Corporation (FDIC) in an attempt to recover $1.9 billion (R$9.2 billion) in cash the regulator has held since took over the group’s banking subsidiary in March.

SVB Financial Group filed for bankruptcy in March after SVB suffered FDIC intervention due to a $42 billion bank run. SVB Financial said the FDIC’s withholding the money violated US bankruptcy law.

The holding company has outstanding bonds and preferred shares with a face value of US$7 billion (R$34.1 billion) that are now largely held by various troubled asset investors. Ownership of the money has been a central issue since the initial bankruptcy court hearing, in which a lawyer for SVB Financial accused the FDIC of having “drafted” $1.9 billion.

The cash balance, held in an account at its banking subsidiary, is described as “the most significant asset” in SVB Financial’s equity, according to the lawsuit filed Sunday night in federal bankruptcy court in New York. SVB Financial said that unless the FDIC returns the funds, it may have to seek outside funding to pay for the process, which it described as potentially “expensive and uncertain”.

“The debtor’s lack of access to these account funds is impeding his ability to reorganize and causing damage to the debtor on an ongoing basis,” SVB Financial wrote in its lawsuit.

SVB Financial said that after the US Treasury Department invoked the so-called systemic risk exception to make it legal for the FDIC to guarantee Silicon Valley Bank deposits in excess of $100,000, the parent company had the right to access your money on deposits at the banking subsidiary.

In earlier depositions and court papers the FDIC argued that it might have so-called set-off rights to claim money from the parent company to cover potential liabilities. SVB Financial said it still needs to learn on what basis the FDIC can claim such rights.

The issue between the two sides is who, in the interim, gets the money, leaving one party to complain to the other about what share it believes should rightfully be returned.

Last month, SVB Financial announced an agreement to sell its investment banking and securities business to an acquisition group led by one of its investment bankers, Jeffrey Leerink, in a transaction valued at around $80 million (Rs. $389.8 million).

Contacted, the FDIC did not respond at the time of publication of this text.

Translated by Luiz Roberto Gonçalves