Tension flares as U.S. Senator Elizabeth Warren takes Goldman Sachs to task over the downfall of Silicon Valley Bank (SVB). In an escalating exchange of questions and responses, Warren places the spotlight on Goldman’s actions and potential gains during SVB’s tumble into bankruptcy.
The backdrop of profits amid losses
Warren outlines a narrative where Goldman Sachs plays multiple roles: purchaser of SVB bonds, orchestrator of a thwarted capital raise, and beneficiary in the bank’s collapse.
She alleges that while the FDIC was intervening with SVB, Goldman Sachs was not just watching idly by but capitalizing on the situation.
Goldman Sachs, as per Warren’s claims, allegedly bought a bond portfolio which caused SVB a loss of $1.8 billion, just ahead of a failed share sale.
The share sale, orchestrated by none other than Goldman Sachs, didn’t take off. Yet, according to Warren, the Wall Street titan still pocketed profits and fees.
The controversy deepens as Warren indicates that the market turbulence following SVB’s failure amplified the value of Goldman’s discounted bond portfolio.
The estimated value increase is around $100 million. The Wall Street bank’s gains amidst SVB’s troubles, Warren insists, raises some serious questions.
Responding to Warren’s allegations, Tony Fratto, Goldman Sachs’ spokesperson, mentioned that the bank is carefully reviewing her letter. He emphasized that banks usually don’t profit from halted capital raises, suggesting Goldman’s alleged windfall is not as straightforward as it may seem.
Fratto’s counter-narrative points to a different estimate of profit from the SVB portfolio sale. He pegs it around $50 million, half of what Warren projects.
SVB’s downfall and lawsuits
The crisis began when SVB Financial Group filed for Chapter 11 bankruptcy protection in March, aiming to seek asset buyers. This followed the regulatory takeover of its former unit, Silicon Valley Bank. It’s here that Goldman Sachs found itself entangled in controversy.
Goldman Sachs, as the underwriter of several SVB Financial Group share offerings in 2021 and 2022, was among the defendants in a securities class action lawsuit.
The plaintiffs in the lawsuit claim that the offer documents contained significant misstatements and omissions. The damages sought in the lawsuit, filed in the U.S. District Court for the Northern District of California, remain unspecified.
Amid these entanglements, Goldman Sachs discloses that it is “cooperating with and providing information to various governmental bodies” investigating SVB. This includes its transactions in March, the tumultuous month that witnessed key events leading to the bank’s demise.
In an era where financial giants are facing increasing scrutiny, Warren’s grilling of Goldman Sachs over its alleged profits from SVB’s failure marks another chapter.
It underscores the ongoing tension between regulatory bodies and Wall Street institutions, as the latter’s operations are put under the microscope. The discourse around the issue continues, with both parties holding their ground.
