The Federal Reserve and the Securities and Exchange Commission are investigating Goldman Sach’s role in buying Silicon Valley Bank’s securities portfolio while it was working on its doomed capital raise before the bank’s failure, according to people familiar with the matter.
The Justice Department has also subpoenaed Goldman as part of its investigation into SVB, some of the people said. The Wall Street Journal previously reported that the SEC and Justice Department are investigating the bank’s collapse. The Goldman inquiries are part of the broader probes, some of the people said.
The Fed and the SEC are seeking documents related to Goldman’s role as both buyer of the securities portfolio and adviser on the capital raise for SVB, the people said. They are looking to see if Goldman’s investment banking side and its trading division were improperly communicating about the portfolio sale, some of the people said.
Goldman disclosed in a securities filing last month that “various governmental bodies” were looking into the bank’s involvement with SVB.
Goldman said it is “cooperating with and providing information to various governmental bodies in connection with their investigations and inquiries into SVB, including the firm’s business with SVB in or around March 2023.”
Goldman played an important role in SVB’s final days. SVB hired Goldman to help it raise capital. Goldman’s trading division, meanwhile, bought SVB’s $21 billion portfolio of available-for-sale debt securities at a discount to its market value.
It is rare for banks to simultaneously work as both an adviser to a company and a buyer of its assets, except in times of financial stress, bankers and banking lawyers say.
Goldman bankers told SVB executives that before they raised capital, SVB must sell part or all of its securities portfolio to illustrate a need for capital, people familiar with the matter said. Greg Becker, former CEO of SVB, told the Senate Banking Committee the same thing in May.
Both parties were worried about news of SVB’s problems leaking to the broader public, and some people said Goldman suggested it buy the securities portfolio. SVB executives decided not to shop the portfolio around because of fears that the market would get wind that they were in trouble, according to people familiar with the matter.
A Goldman spokeswoman said that before the portfolio sale, Goldman “informed SVB in writing that we would not act as their adviser on the sale, and that SVB should not rely on any advice from the bank in this regard, but instead hire a third-party financial adviser.”
Goldman bankers sent a letter to SVB’s chief financial officer, according to people who have seen or were apprised of the communication.
On March 8, SVB announced that it had realized a $1.8 billion loss on the sale of its debt securities and that it was selling stock to raise money. SVB’s stock tanked after the bank disclosed the loss and a deluge of other negative news, including a Moody’s downgrade.
Depositors rushed to pull their money. SVB was seized by the Federal Deposit Insurance Corp. on March 10, kicking off a banking crisis that took down Signature Bank and First Republic.
Goldman began selling pieces of the SVB securities portfolio after it purchased them in March, according to a Goldman spokeswoman. The bank expected to earn less than $50 million by the time the entire portfolio was sold, the spokeswoman said in early May.