SVB Financial Group‘s recent failure has been making headlines as the largest bank to fail since the 2008 financial crisis. The reason for SVB’s failure was a $1.8 billion loss on a bond portfolio.
The tech-focused lender had attempted to raise $2.25 billion through a stock sale, but the capital raise was unsuccessful, leading to depositors fleeing and investors worrying that SVB would require even more capital.
Investors King understands that in an attempt to recover some of the loss, SVB sold the bond portfolio to Goldman Sachs Group Inc on March 8. The portfolio, consisting mostly of U.S. Treasuries, had a book value of $23.97 billion, and was sold to Goldman Sachs at negotiated prices, netting SVB $21.45 billion in proceeds.
Goldman Sachs’ purchase of the bond portfolio was handled by a separate division from the unit that handled SVB’s stock sale, according to a source familiar with the matter. This arrangement is typical in major banks to avoid conflicts of interest.
While SVB suffered a significant loss, Goldman Sachs gained a profitable bond portfolio. The purchase of the bond portfolio highlights the potential gains that can be made from distressed assets.
In this case, Goldman Sachs was able to acquire a large bond portfolio at a negotiated price, which could potentially yield significant profits in the future.