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Mar 14, 2023

Silicon Valley Bank hit with first shareholder lawsuit over crash

Biggest bank collapse since 2008

A shareholder of Silicon Valley Bank (SVB) has filed a class action lawsuit against the bank for failing to disclose the impact interest rate hikes would pose to the business before it collapsed.

The lawsuit is being filed by shareholder Chandra Vanipenta against defendants SVB Financial Group, its CEO Greg Becker and its CFO Daniel Beck. The suit aims to seek ‘compensable damages’ caused by the bank’s collapse on March 10 and the defendants’ subsequent violations of the federal securities laws.

Silicon Valley Bank hit with first shareholder lawsuit over crash

It alleges SVB made ‘false and/or misleading statements’ when disclosing to investors the risks presented by impending rising interest rates in the US. The bank also failed to disclose to investors how, in an environment with high interest rates, it would be ‘worse off’ than banks that did not cater to tech start-ups and venture capital-backed companies, the suit adds.

It argues that SVB failed to disclose that were its investments to be ‘negatively affected’ by rising interest rates, it was particularly susceptible to a ‘bank run’ and that, in its 2021 annual report, the bank ‘understated’ the risks posed to the company by not disclosing that ‘likely interest rate hikes had the potential to cause irrevocable damage’.

Critical response

In response to the bank collapse, US Treasury Secretary Janet Yellen, Federal Reserve Board chair Jerome Powell and Federal Deposit Insurance Corporation chair Martin Gruenberg issued a joint message, saying that none of SVB’s losses ‘will be borne by the taxpayer’.

Shareholders and certain unsecured debtholders ‘will not be protected,’ the statement reads. ‘Senior management has also been removed. Any losses to the deposit insurance fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.’

Silicon Valley Bank hit with first shareholder lawsuit over crash

Meanwhile, the UK subsidiary of the bank is set to enter insolvency. There are growing concerns as to how this may impact the UK economy, though the Bank of England confirmed last Friday that due to the bank having a ‘limited presence’ in the UK and not performing functions ‘critical’ to the financial system, the backlash would not be as great as that felt in the US.

UK multinational banking firm HSBC says it will bail out SVB’s UK holding and acquire the business for £1 ($1.21). As of March 10, SVB UK had loans of around £5.5 bn and deposits of around £6.7 bn.

Noel Quinn, group CEO at HSBC, says: ‘This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.’

SVB has been contacted for comment.