The Scoop
In mid-2020, Goldman Sachs was pursuing a takeover that might have changed the shape of the U.S. financial system and possibly altered the events of the past week.
With CEO David Solomon’s support, its bankers and strategists were talking to their counterparts at Silicon Valley Bank about buying the West Coast lender, whose enviable roster of tech clients and recent surge of deposits would both have slotted neatly into Goldman’s businesses and priorities, people familiar with the matter said.
Solomon and his counterpart at that time at SVB, Greg Becker, spoke directly about a deal, as well as other ways to partner by sharing investment-banking clients and roles in fundraisings. But the talks ultimately fizzled, largely over price and concerns that regulators wouldn’t sign off, the people said.
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Liz’s view
Say what you will about Goldman Sachs, but it has a very good track record in risk management. Had that deal happened, we probably wouldn’t be here today. (To quickly recap: SVB took an influx in startup deposits and plowed them into long-dated bonds, a classic mismatch, in search of extra profits.)
It’s a sign of Goldman’s missteps in the intervening three years that it isn’t the obvious savior now. It remained interested in SVB last week, people familiar with the matter said, and explored a bid for the deposits and cash-management franchise, but, along with other big banks, was waved off by regulators, people familiar with the matter said.
Some of that was likely due to the FDIC’s reluctance to sell SVB to any big bank, as I reported on Tuesday with my colleague, Gina Chon. But Goldman is uniquely poorly positioned now after a series of strategic mistakes in its quest to build a consumer and commercial bank. The company lost $3 billion and a lot of credibility with investors and regulators.
One other note: Goldman was SVB’s adviser in its efforts to raise money and avoid insolvency. As part of that, it bought the $21 billion bond portfolio that crystallized SVB’s losses and spooked investors into a run. Goldman is set to earn about $50 million from the trade, people familiar with the matter said – not unusual compensation for the risk it was taking on, but also not a good look.
The View From Europe
As regulators scramble to find buyers for SVB and Signature Bank — Reuters reports that bids for the latter are due tomorrow — fear is spreading in Europe. Credit Suisse’s bonds are trading at steep discounts, and the firm’s annual report, which had been delayed by regulators questioning its financial reporting and was finally released yesterday, failed to reassure investors and creditors.
Credit Suisse’s problems are, at least for the most part, unrelated to the interest-rate squeeze that is now threatening U.S. banks. It has had a series of risk-management fiascos in recent years in its investment bank, which it is now spinning off as it returns to its roots as a domestic Swiss lender and concierge wealth manager.
But the run on American banks has roiled financial markets around the world and raised questions about whether Europe’s chronically weak and blundering banks might be next.
Notable
- Switzerland’s bank regulator said “the problems of certain banks in the USA do not pose a direct risk of contagion,” even as it threw a $54 billion lifeline to Credit Suisse.