Silicon Valley Bank revealed that Goldman Sachs purchased the bond portfolio on which the startup lender recorded a multibillion-dollar loss, precipitating the largest bank failure since 2008.
According to Reuters, the debt holdings were originally valued at $23.97 billion but were eventually sold for a negotiated price of $21.45 billion. Silicon Valley Bank suffered a $1.8 billion loss as a result (SVB).
The massive shortfall prompted the bank to try to raise more capital by selling shares, a plan that backfired and sparked an old-fashioned bank run, leading to the bank’s rapid meltdown.
The lender was shut down by regulators on Friday and taken over by the Financial Deposit Insurance Corporation, marking the largest bank failure since Washington Mutual went bankrupt 15 years ago. Signature Bank followed suit not long after.
The losses from SVB’s bond fire sale were primarily caused by the Federal Reserve’s aggressive monetary policy over the last year. SVB’s bond holdings have lost value as interest rates have risen by 450 basis points since March 2022, despite the fact that the lender purchased the assets when rates were relatively low. Bond prices fall as interest rates rise.
The company’s $21 billion bond portfolio had a yield of 1.79% and a duration of 3.6 years, according to SVB Financial’s updated investor deck. The 3-year US Treasury note now yields 4%, a significant increase from the levels at which the bank purchased the securities prior to 2022.