SVB Financial sues US regulator to recover $1.93bn seized in March

The company lawsuit says the FDIC violated bankruptcy rules by transferring funds and refusing to honour SVB Financials’ demand to be paid

SVB Financial said that unless the FDIC returned the funds, it might have to seek external financing to pay for the case. Reuters

SVB Financial Group is suing the US Federal Deposit Insurance Corporation (FDIC) as it looks to recover $1.93 billion seized by the regulator when it took over the failed Silicon Valley Bank in March.

SVB Financial said the FDIC asserted it has claims against the company to justify its refusal to pay but has not identified a single claim “despite having numerous opportunities”, media reports cited filing in a bankruptcy court on Sunday.

The company said the FDIC violated bankruptcy rules by transferring funds and refusing to honour SVB Financials’ demand to be paid, Reuters reported. The FDIC did not immediately respond to Reuters' request for comment.

The company filed for bankruptcy in March after Silicon Valley Bank became the ward of the FDIC following a $42 bank run.

The holding company has bonds and preferred stock outstanding with a face value of $7 billion that are now largely held by various distressed-asset investors.

Ownership of the cash has been a central issue since the opening bankruptcy court hearing, in which one lawyer for SVB Financial accused the FDIC of having “drained” the $1.9 amount, according to a Financial Times report.

The cash balance, which is held in an account at its banking subsidiary, is described as “the most significant asset” of the SVB Financial estate, the FT said, citing the lawsuit filed in a New York federal bankruptcy court.

SVB Financial said that unless the FDIC returned the funds, it might have to seek external financing to pay for the case, a process which it described as potentially “costly and uncertain”.

“The Debtor’s lack of access to these Account Funds is impeding its ability to reorganise and causing harm to the Debtor on a continuous basis,” SVB Financial wrote in its lawsuit.

The holding company 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 Silicon Valley Bank deposits greater than $100,000, the parent company was entitled to access its cash on deposit at the seized banking subsidiary.

The FDIC in previous court appearances and court papers argued that it might have so-called offset rights to claim the parent company’s cash to satisfy potential liabilities.

At issue between the two sides is who in the interim gets to possess the cash, leaving one party to submit a claim to the other over what portion it believes must be rightfully handed back, the FT report said.

SVB Financial, the parent company of Silicon Valley Bank before it was seized, is attempting to sell its remaining assets in bankruptcy.

Last week, a US bankruptcy judge allowed the company to sell its investment banking business to a group led by the division’s former chief executive, Jeff Leerink and is backed by funds managed by the Baupost Group.

The deal includes an equity financing of up to $100 million from Baupost along with a $30 million financing commitment from Mr Leerink's team, Reuters cited a court filing as saying at the time.