SVB Financial sues US banking regulator to recover $1.9bn

SVB Financial is trying to recover nearly $2bn in cash deposits that became trapped when Silicon Valley Bank entered receivership in March © Philip Pacheco/Bloomberg SVB Financial Group has sued the US Federal Deposit Insurance Corporation in a bid to recover $1.9bn in cash that the regulator has kept […]

SVB Financial Group has sued the US Federal Deposit Insurance Corporation in a bid to recover $1.9bn in cash that the regulator has kept since it took over the group’s banking subsidiary in March.

SVB Financial Group, a parent holding company, filed for bankruptcy in March after Silicon Valley Bank became the ward of the FDIC following a $42bn bank run. SVB Financial said retention of the cash by the FDIC violated US bankruptcy law.

The holding company has bonds and preferred stock outstanding with a face value of $7bn that are now largely held by various distressed-asset investors. Ownership of the cash has been a central issue since the opening bankruptcy court hearing, in which one lawyer for SVB Financial accused the FDIC of having “drained” the $1.9bn amount.

The cash balance, which is held in an account at its banking subsidiary, is described as “the most significant asset” of the SVB Financial estate, according to the lawsuit filed on Sunday night in a New York federal bankruptcy court. SVB Financial said that unless the FDIC returned the funds, it might have to seek external financing to pay for the case, a process which it described as potentially “costly and uncertain”.

The cash balance, which is held in an account at its banking subsidiary, is described as “the most significant asset” of the SVB Financial estate, according to the lawsuit filed on Sunday night in a New York federal bankruptcy court. SVB Financial said that unless the FDIC returned the funds, it might have to seek external financing to pay for the case, a process which it described as potentially “costly and uncertain”.

SVB Financial said that after the US Treasury department invoked the so-called systemic risk exception to make it legal for the FDIC to insure Silicon Valley Bank deposits greater than $100k, the parent company was entitled to access its cash on deposit at the seized banking subsidiary.

The FDIC in previous court appearances and court papers argued that it might have so-called offset rights to claim the parent company’s cash to satisfy potential liabilities. SVB Financial said it had yet to learn on what grounds the FDIC might assert any such rights.

At issue between the two sides is who in the interim gets to possess the cash, leaving one party to submit a claim to the other over what portion it believes must be rightfully handed back.

Last month, SVB Financial announced a deal to sell its securities and investment banking business to a buyout group led by one of its investment bankers, Jeffrey Leerink, in a transaction valued at about $80mn.

The FDIC did not immediately respond to a request for comment.

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