One of the biggest financial stories of the moment is the collapse of Silicon Valley Bank. And now Goldman Sachs is being pulled into the drama.
The investment bank is set to receive more than $100 million dollars after the failure of SVB, The New York Times reported on Wednesday. That’s because Goldman bought $21.4 billion of debt from the beleaguered bank, which came at a loss of $1.8 billion to SVB. (A spokesperson for Goldman declined to comment to the Times.)
Let’s step back a bit: In early March, Moody’s told SVB privately that it was facing a potential downgrade. In response, the bank reached out to Goldman for advice on how to right the ship. The plan to make SVB viable included both raising capital and buying debt, but neither action was enough to ultimately save the bank from collapsing—and the buying of debt actually led to concerns about the bank’s viability and resulted in its failure, the Times wrote.
Now Goldman’s role in the whole ordeal is coming under scrutiny, as the investment bank stands to profit from SVB’s failures. While working to help raise capital, Goldman gave SVB the chance to hire another adviser to work on the bond deal, but SVB decided to go ahead with Goldman on both fronts, the Times reported. That’s not necessarily uncommon, but it has led people to ask questions about Goldman’s involvement and whether it worked in an “arm’s length manner” to keep some separation between the various teams.
It is possible that the $100 million fee doesn’t get paid out to Goldman. Some government officials are asking for a clawback of bonuses that SVB paid to executives and profits they made from selling stock. And the Justice Department, which is investigating SVB, has worked more generally to claw back incentives. But it’s not yet clear whether Goldman’s fee falls into any of these categories, and the Times noted that bankruptcy judges usually let companies pay for services before declaring bankruptcy, as long as the price is fair and the “arm’s length” mandate is applied.
So what happens now? Nobody can know for sure, but it seems like the financial world’s eyes will certainly be trained on Goldman in the short term.
