U.S. regulators are willing to consider the prospect of backing losses at Silicon Valley Bank and Signature Bank if it helps push through the sale of defaulting lenders, according to people briefed on the matter.
The Federal Deposit Insurance Corporation’s willingness to discuss loss sharing marks a significant shift in stance for the agency, which had explicitly ruled out any such arrangement when it unsuccessfully attempted to auction SVB over the weekend. last.
However, the FDIC gave the bidders no guidance on how much loss it would be willing to support or how the arrangement would be structured, the sources said.
A sale of SVB or Signature could result in immediate losses as the new buyer would have to lower the price of certain assets to reflect their current market value.
After taking control of SVB and Signature last week, the FDIC attempted to auction the banks off to a buyer but didn’t generate much interest, receiving only one bid from an outside bidder. banking sector which was rejected.
The lack of interest was partly because the agency was unwilling to discuss the possibility of taking losses on lenders’ assets, one of the people said.
Buyout titans such as Blackstone Group and Apollo Global Management have expressed interest in buying parts of SVB’s loan book. However, the FDIC is only willing to accept offers from banks for all of SVB’s commercial banking, including loans and deposits, according to those involved in the process.
On Friday, SVB’s holding company filed for bankruptcy protection. The move was made as part of an attempt to recoup the value of two divisions – a brokerage and a technology investment firm – which are separate from the depository bank.
The FDIC declined to comment on details of the SVB and Signature sale process, which is handled by Piper Sandler bankers. A Piper Sandler banker involved in the sale process declined to comment.
“We are actively marketing both institutions,” an FDIC spokesperson said. “We haven’t set a deadline for the offers, but we hope to resolve them within a week.”
Loss sharing agreements are common in FDIC sales. The FDIC offered generous loss-sharing agreements to complete a number of deals during the 2008 financial crisis, but later came under fire when some of the deals turned out to be lucrative for the buyer.
Agreeing to a loss-sharing deal could also expose the government to accusations that its attempts to bail out some banks are actually a bailout.
Most loss-sharing agreements are set up as a type of insurance that will cap the overall potential losses a buyer could incur as a result of an agreement, with the government covering anything over that amount. But the FDIC has sometimes agreed to take a so-called first-loss position, covering all initial losses recognized at the time of the trade.
Additional reporting by Eric Platt in New York
