SVB Financial sues US banking regulator to recover $1.9 billion

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SVB Financial Group has sued the US Federal Deposit Insurance Corporation to recover $1.9 billion in cash held by the regulator since it acquired the group’s banking subsidiary in March.

SVB Financial Group, an original holding company, filed for bankruptcy in March after the Silicon Valley bank became a ward of the FDIC following bank operations of $42 billion. SVB Financial said the FDIC’s retention of the cash was in violation of US bankruptcy law.

The holding company has $7 billion in face value of bonds and preferred stock outstanding which are now largely held by various distressed asset investors. The ownership of the cash has been a central issue since the bankruptcy court’s initial hearing, in which an attorney for SVB Financial accused the FDIC of “swiping away” $1.9 billion.

Cash balances held in accounts at its banking subsidiary are described as SVB Financial Estate’s “most important asset,” according to a lawsuit filed Sunday night in New York federal bankruptcy court. SVB Financial said that unless the FDIC returned the funds, it may have to seek outside financing to pay for the case, a process it described as potentially “costly and uncertain”.

“The Borrower’s lack of access to these account funds is impeding the Borrower’s ability to reorganize, and the Borrower continues to suffer losses,” SVB Financial wrote in its lawsuit.

SVB Financial said that after the US Treasury Department invoked the so-called systemic risk exception to make it legal for the FDIC to insure deposits of more than $100,000 at a Silicon Valley bank, the parent company seized its cash on deposits at the banking giant. entitled to access. Assistant.

The FDIC has argued in previous court submissions and court papers that it may have so-called offset rights to claim the parent company’s cash to meet potential liabilities. SVB Financial said it did not yet know on what basis the FDIC could assert any such rights.

The issue between the two parties is who will have the cash in the interim, leaving one party to claim on the other what portion of the cash it believes should be rightfully returned.

Last month, SVB Financial announced a deal to sell its securities and investment banking business to a buyout group led by one of its investment bankers, Jeffrey Leerink, in a transaction valued at approximately $80 million.

The FDIC did not immediately respond to a request for comment.