US regulators are poised to consider the prospect of recovering losses at Silicon Valley Bank and Signature Bank if it helps push through a sale of the failed lenders, according to people familiar with the matter.
The Federal Deposit Insurance Corporation’s willingness to discuss loss sharing marks a significant shift in position for the agency, which had explicitly ruled out such an arrangement when it attempted to auction the SVB last weekend and failed.
However, the FDIC has not given the bidders any indication of the amount of losses it would be willing to absorb or any indication of how the arrangement would be structured, the people said.
A sale of SVB or Signature could cause immediate losses as the new buyer would have to mark down the price of some assets to reflect their current market value.
After taking control of SVB and Signature last week, the FDIC attempted to auction the banks to a buyer but failed to garner much interest, receiving only one bid from a non-bank bidder, which was rejected.
Part of the lack of interest is because the agency is unwilling to discuss the possibility of shouldering any losses on lenders’ assets, one of the people said.
Buyout titans such as Blackstone Group and Apollo Global Management have expressed interest in buying parts of SVB’s loan book. However, the FDIC is only willing to accept offers from banks for the entire SVB commercial bank, including loans and deposits, according to people involved in the process.
On Friday, the SVB Holding applied for bankruptcy protection. The move came as part of an attempt to salvage the value of two businesses separate from the deposit bank — a broker-dealer and a technology investment business.
The FDIC declined to comment on details of the SVB and Signature sales process being conducted by bankers at Piper Sandler. A banker at Piper Sandler involved in the sale process declined to comment.
“We are actively marketing both institutions,” said a spokesman for the FDIC. “We have not set a deadline for offers, but we hope they will be resolved within a week.”
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Loss-sharing agreements are common in FDIC sales. The FDIC offered generous loss-sharing arrangements to complete a number of deals during the 2008 financial crisis, but later came under fire when some of the deals proved lucrative for the buyer.
Agreeing to loss-sharing could also expose the government to accusations that its attempts to bail out some banks are actually a bailout.
Most loss sharing agreements are designed as a form of insurance, limiting the total potential losses a buyer could incur from a deal, with the government covering anything in excess of that amount. However, the FDIC has at times agreed to maintain a so-called first-loss position, which covers any initial losses recognized at the time of the transaction.
Additional reporting by Eric Platt in New York
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