SVB Files for Chapter 11, First Republic Collapses Again on Wall Street By

SVB Files for Chapter 11, First Republic Collapses Again on Wall Street By
SVB Files for Chapter 11, First Republic Collapses Again on Wall Street By

By Geoffrey Smith – SVB Financial Group (NASDAQ:), the parent company of Silicon Valley Bank, has filed for Chapter 11 bankruptcy a week after US financial regulators stepped in with emergency measures to secure the system.

SVB said it has filed a voluntary court-supervised reorganization under Chapter 11 in the United States Bankruptcy Court for the Southern District of New York “to preserve value,” stating that the funds and the general partner entities of SVB Securities and SVB Capital “are not included in the Chapter 11 filing” and “continue to operate as usual”.

The holding, it was added, “will continue to seek strategic alternatives for these activities”.

Meanwhile, Silicon Valley Bank itself is no longer within the perimeter of the group: the assets and liabilities were transferred to a new bridge bank last week, after the regulators took over to avoid spill-over.

Recall that the bank was hit by a run on deposits that forced it to liquidate government bonds at a loss of $1.8 billion, news that has prompted more and more depositors – largely corporates – to withdraw money from the bank.

Efforts by the Federal Reserve, Federal Deposit Insurance Corp., and the Treasury to find a buyer for the bank failed, despite a promise to honor all of its deposits. Earlier this week it was reported that the Fed and FDIC were planning a new bid to sell the bank, while other reports suggested that various venture capital groups, with possible backing from Apollo Global Management (NYSE:APO), they were considering buying some operations.

The bank’s collapse was the second largest on record in the United States, beaten only by the failure of Washington Mutual in 2008, sparking a crisis of confidence among small- and mid-cap US banks, especially those based on the West Coast and with high exposure to the world of startups and other corporate clients.

First Republic Bank (NYSE:)(NYSE:FRC), seen as the next domino to fall, was under pressure again in trading on Friday, dropping more than 20% despite news Thursday night that a consortium led by the major US banks has agreed to deposit 30 billion dollars in FR, effectively replacing most of the funds withdrawn by customers in recent weeks.

Over the past month, FR stock has lost about 80% of its capitalization.

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