by SVB Financial Group and two top executives have been sued by shareholders over the collapse of Silicon Valley Bank as global stocks continued to suffer on Tuesday despite assurances from US President Joe Biden.
The bank’s shareholders have accused SVB Financial Group CEO Greg Becker and CFO Daniel Beck of concealing how rising interest rates would make their Silicon Valley Bank division “particularly vulnerable” to a bank run.
The proposed class action lawsuit was filed Monday in federal court in San Jose, California.
It appeared to be the first of many likely lawsuits over the sinking of Silicon Valley Bank (SVB) that US regulators seized on March 10 following a spate of deposit withdrawals.
The news came as shockwaves from Tuesday’s SVB collapse continued to weigh on global bank stocks, with calls from Biden and other policymakers to calm markets do little, prompting some analysts to reconsider their outlook for interest rates.
“Americans can rest assured that our banking system is secure. Your deposits are safe. Let me also assure you that we will not stop there. We will do whatever it takes,” Biden said Monday.
Biden’s comments, as well as US emergency measures to guarantee SVB customers’ deposits and prop up banks through access to additional funding, failed to allay investor concerns about possible contagion in the banking sector.
Bank stocks in Asia continued their declines on Tuesday, with Japan’s banking sub-index leading the decline, falling 6.7% in early trade to its lowest level since December.
“Bank runs have started [and] Interbank markets are tight,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Liquidity actions should have arguably halted this momentum, but Main Street was watching news and queues — not financial installs.”
The rating agency Moody’s on Monday downgraded the credit ratings of the collapsed Signature Bank deep into junk territory and reviewed the ratings of six other US banks for downgrades.
The banks reviewed for downgrade were First Republic Bank, Zions Bancorporation, Western Alliance Bancorp, Comerica Inc, UMB Financial Corp and Intrust Financial Corporation.
Moody’s, which rated Signature Bank’s subordinated debt a “C,” said it was also withdrawing future ratings for the failed bank.
In Monday’s lawsuit, shareholders led by Chandra Vanipenta said Santa Clara said California-based SVB failed to disclose how rising interest rates were undermining its business model, leaving it worse off than banks with diverse customer bases.
SVB had surprised the market two days earlier by announcing a $1.8 billion after-tax loss from asset sales and planned to raise capital as it struggled to meet demand from customers wanting to access their deposits.
The SVB had an estimated $209 billion in assets and $175.4 billion in deposits prior to its collapse, the largest collapse of a US bank since the 2008 financial crisis.
Its collapse has raised fears that overexposure to falling bond prices could make other banks vulnerable to rising interest rates.
The lawsuit is seeking unspecified damages to SVB investors between June 16, 2021 and March 10, 2023.
The SVB said on Monday it would examine strategic alternatives for what remains of the company, now stripped of its main banking operations.
The FDIC on Monday appointed Tim Mayopoulos, the former head of Fannie Mae, as chief executive officer of Silicon Valley Bank. According to TechCrunch, a statement from Mayopoulos to customers said the bank was “continuing with business as usual.”
