THE speed with which four banks collapsed — and one continues to struggle — has left investors reeling. While the failures came in the span of just 11 days, the scenarios that brought them down were each unique.
Here’s how the companies’ turmoil played out, and how regulators responded, amid concern the crisis might still spread:
Silvergate Capital Corp was the first US bank to collapse, done in by its exposure to the crypto industry’s meltdown. With authorisation from the Federal Reserve (Fed), the Federal Deposit Insurance Corp (FDIC) had tried to step in, discussing with management ways to avoid a shutdown.
But the La Jolla, California-based company couldn’t recover amid scrutiny from regulators and a criminal investigation by the Justice Department’s fraud unit into dealings with Sam Bankman-Fried’s fallen crypto giants FTX and Alameda Research.
Though no wrongdoing was asserted, Silvergate’s woes deepened as the bank sold off assets at a loss to cover withdrawals by its spooked customers. It announced plans on March 8 to wind down its operations and liquidate its bank.
Silicon Valley Bank
With Silvergate’s obituary mostly written, investors and depositors in SVB Financial Group’s Silicon Valley Bank were already on edge when the company on March 8 announced a plan to sell US$2.25 billion of shares — as well as significant losses on its investment portfolio.
Shares of the company sank 60% the next day on the news, and it collapsed into FDIC receivership the following day. US regulators moved toward a breakup of the bank when they failed to line up a suitable buyer. But more hopeful news emerged on Monday, when the FDIC extended the bidding process after receiving “substantial interest” from multiple potential buyers.
First Citizens BancShares Inc, one of the biggest buyers of failed US lenders, is still hoping to strike a deal for all of Silicon Valley Bank, Bloomberg News reported Monday, citing people familiar with the matter.
Signature Bank became the third-largest bank failure in US history on March 12, following a surge in customer withdrawals that totalled about 20% of the company’s deposits.
Silvergate’s implosion four days earlier had left clients skittish about keeping their deposits at Signature Bank, despite its much smaller exposure to crypto. Federal regulators said they lost faith in the company’s leadership, and they swept the bank into receivership. Both insured and uninsured customers were given access to all their deposits, under a provision regulators tapped known as the “systemic risk exemption.”
Signature Bank’s deposits and some of its loans were taken over by New York Community Bancorp’s Flagstar Bank late Sunday. The acquirer agreed to purchase US$38 billion of assets, including US$25 billion in cash and about US$13 billion in loans, from the FDIC. It also assumed liabilities of about US$36 billion, including US$34 billion in deposits. Signature’s branches will now operate as Flagstar locations.
Credit Suisse Group AG fell on Sunday when Swiss officials brokered a deal with UBS Group AG for a 3 billion-franc (US$3.2 billion) acquisition aimed at avoiding a broader financial crisis. The only other option under consideration was full or partial nationalisation.
The end of the 166-year-old Swiss institution followed CEO Ulrich Koerner’s attempt to save the bank with a massive outreach to clients, who had pulled an unprecedented amount of funds from the bank last year. The attempt ultimately wasn’t enough to counter multiple scandals and multibillion-dollar losses on Credit Suisse’s dealings with disgraced financier Lex Greensill and failed investment firm Archegos Capital Management.
On March 9, the US Securities and Exchange Commission queried the bank’s annual report, forcing it to delay its publication. Panic spread after the failure of US regional lenders, and the chairman of the bank’s largest shareholder, Saudi National Bank, ruled out investing any more in the company.
First Republic Bank has fallen victim to the same customer flight that ultimately sank three of its US rivals, with one estimate of potential deposit outflows pegging the figure at US$89 billion.
Eleven US lenders tried to prop up First Republic Bank with a US$30 billion cash infusion last week. But the San Francisco-based company, which caters to the personal-banking needs of tech’s elite and other wealthy individuals, has nonetheless dropped to an all-time low amid multiple credit-rating downgrades.
JPMorgan Chase & Co CEO Jamie Dimon has hatched a new plan to aid First Republic that would convert some or all of the 11 banks’ US$30 billion deposit injection into a capital infusion, Bloomberg reported Monday, citing people familiar with the situation. – BLOOMBERG