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What is Silicon Valley Bank? | SVB Investment Loss Investigation

SVB, through its businesses Silicon Valley Bank, SVB Capital, SVB Private and SVB Securities, offer commercial banking, venture investing, wealth planning and investment banking. The firm is headquartered in Santa Clara, California, and has 17 branches in California and Massachusetts. SVB Financial Group (NASDAQ: SIVB) is the holding company for SVB’s business units and groups.

Long-Term Bond Holdings Exposed SVB to High-Risk

In 2021, U.S. venture capital-backed companies raised a record $330 billion, which is double the amount seen in 2020. In the low-interest rate environment of recent years, SVB received billions of dollars from venture-backed clients, and the bank invested the funds in longer-term bonds. Specifically, SVB’s $21 billion bond portfolio was yielding an average of 1.79%, while the 10-year Treasury yield was about 3.9%. As interest rates rose higher and bond prices declined, SVB started taking substantial losses on their long-term bond holdings.

When SVB reported its fourth-quarter results in early 2023, Moody’s Investor Service declared that SVB was at high risk for a downgrade due to its significant unrealized losses. SVB then looked to sell $2 billion of its investments at a loss to help boost liquidity for its balance sheet. Venture capitalists then quickly moved to limit exposure to the bank, which caused a liquidity squeeze and prompted state and federal regulators to intervene and shut down the bank.

SVB Shareholders Unprotected, Brokerage Firms May Be Liable for Silicon Valley Bank Recommendations

“[SVB’s] Shareholders and certain unsecured debtholders will not be protected.”

On Sunday, March 12, 2023, the Federal Reserve, the Treasury Department, and the FDIC issued a joint press release stating that Silicon Valley Bank depositors will have access to all of their money starting Monday, March 13. However, the release stated that “Shareholders and certain unsecured debtholders will not be protected.” As a result, SVIB equity holders have suffered heavy investment losses.

FINRA Rule 2111 requires broker-dealers or associated persons to “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [firm] or associated person to ascertain the customer’s investment profile.” Further, investors who hold large positions in SVIB and are not diversified must employ risk management strategies. Financial advisors have a duty to their clients to recommend strategies to manage the risk with SVIB concentrated stock positions, and Peiffer Wolf encourages investors to explore their legal options.

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