Feds Auction Off Failed Silicon Valley Bank Amid Ongoing Fallout

U.S. regulators were reportedly auctioning off Silicon Valley Bank, whose failure last week continues to rock the financial world.

The auction was underway Sunday (March 12) afternoon, according to multiple media accounts, with the goal of raising enough money to repay the bank’s depositors.

The collapse of Silicon Valley Bank (SVB) on Friday (March 10) was one of the largest banking failures in U.S. history.

The Federal Deposit Insurance Corp. (FDIC) took control of SVB after a run on the bank and is now scrambling to make sure clients’ uninsured deposits are available when the bank reopens on Monday (March 13).

A report Saturday (March 11) by Bloomberg News said these payouts would help the bank’s distressed customers, many of whom are Silicon Valley startups. Payouts could be in the range of 30% to 50% of uninsured deposits, the report said, citing unnamed sources.

Regulators could also create a fund that would backstop deposits if further banks go under, the news outlet reported.

Bloomberg also notes a number of investment firms — HPS Investment Partners and Oaktree Capital Management among them — are offering financing to companies with cash stuck with SVB. Some have offered to buy claims on the deposits while others are offering liquidity to private equity and venture capital firms whose portfolio companies have deposits at SVB.

Another venture capital firm, Khosla Ventures, emailed founders offering to cover payroll at some of its portfolio companies if they came up short.

A spokesperson for the firm told Bloomberg Khosla was in talks with more than 100 companies and was “assessing their critical needs” and would offer bridge financing “at our cost of borrowing only,” for startups where Khosla was a lead or key investor.

Meanwhile, a number of venture capital firms say they will work with SVB if a new owner is found, with 300 investors issuing a statement shared across social media this weekend praising its role in the startup community over the last 40 years.

“The events that unfolded over the past 48 hours have been deeply disappointing and concerning,” the statement read. “In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”

Shockwaves from SVB’s implosion have been felt overseas. As Bloomberg News reported, the leaders of about 180 tech firms have written to U.K. Chancellor Jeremy Hunt to intervene.

“The loss of deposits has the potential to cripple the sector and set the ecosystem back 20 years,” they wrote in the letter seen by Bloomberg. “Many businesses will be sent into involuntary liquidation overnight.”

The report notes that SVB had branches in a number of countries, China, India, Israel and Germany among them, with founders seeking government help to protect their startups.

Meanwhile, the failure of SVB has impacted companies outside the VC space. On Saturday, eCommerce marketplace Etsy said it had seen a delay in issuing payments to some sellers because of the bank’s collapse.

“Our teams have been working around the clock to implement a solution, and we expect to pay sellers via our other payment partners within the next several business days,” the company said in a blog entry.

The payments firm Wise said Sunday it held funds with SVB — the largest European firm to do so, Reuters notes — but said its exposure was minimal.

“We have minimal exposure to SVB via a credit facility they are part of together with six other major banks, and a small cash balance in an operational corporate account,” a Wise spokesperson told Reuters.

Among the people who are getting paid? SVB employees, who reportedly received yearly bonuses hours before the FDIC took over.

As CNBC reports, sources said SVB has long given out bonuses on the second Friday in March, with the payments reflecting work done the prior year. This year, the bonuses happened to fall on the bank’s final day as an independent business.