- Goldman Sachs bought Silicon Valley Bank’s bond portfolio whose $1.8 billion loss set off its shocking meltdown.
- The assets were worth $23.97 billion but sold at a negotiated price of $21.45 billion, SVB said, per Reuters.
- SVB made a bad bet by staying invested in the long-dated bonds it bought before the Federal Reserve began raising interest rates.
Silicon Valley Bank revealed Tuesday that Goldman Sachs bought the bond portfolio on which the startup lender booked a multi-billion-dollar loss, setting off the biggest bank failure since 2008.
The debt holdings, originally valued at $23.97 billion, ended up being sold at a negotiated price of $21.45 billion, per Reuters. That led to a loss of $1.8 billion for Silicon Valley Bank (SVB).
The huge shortfall spurred the bank to attempt raising more capital by selling shares – a plan that ended up in the dumps and sparked an old-fashioned bank run that would lead to its rapid meltdown.
On Friday, the lender was shut down by regulators and put under the control of the Financial Deposit Insurance Corporation, marking the biggest bank failure since Washington Mutual folded up 15 years ago. Not long after, Signature Bank also closed down.
The losses from SVB’s bond fire sale was largely a result of the Federal Reserve’s aggressive monetary policy over the past year. A 450-basis-point surge in interest rates since March 2022 saw SVB’s bond holdings plunge in value, given the lender had bought the assets at a time when rates were relatively low. Bond prices fall as yields rise.
According to SVB Financial’s updated investor deck, the company’s $21 billion bond portfolio had a yield of 1.79% and a duration of 3.6 years. Today, the 3-Year US Treasury note yields 4%, a stark difference from the levels at which the bank bought the securities prior to 2022.