The FDIC plans to return some uninsured SVB deposits Monday

(Bloomberg) – U.S. regulators overseeing the emergency dissolution of SVB Financial Group are scrambling to sell assets and make some customers’ uninsured deposits available as early as Monday, according to people familiar with the situation.

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The initial payout — the amount of which has yet to be determined — would be aimed at bridging the company’s distressed customers, many of them Silicon Valley entrepreneurs and their companies, with more cash to follow when the bank’s assets are sold. The amount will be partially funded by the advances of the Federal Deposit Insurance Corp. in converting assets into cash until Sunday night.

Figures being circulated behind the scenes for an initial payment range from 30% to 50% or more of uninsured deposits, the people said, asking not to be identified to have private calls.

A spokesman for the FDIC did not respond to requests for comment on their plans.

Silicon Valley Bank’s business customers are desperate to access their money to keep operations running and pay employees. On Friday, the bank became the largest US lender to fail in more than a decade, dissolving in less than 48 hours after announcing plans to raise capital. The company, which swelled in recent years as it siphoned deposits from tech startups, began losing money as those customers ran out of funding and withdrawn balances.

Read what happened: The collapse of the SVB was due to Treasury bets in a pandemic

At the end of last year, Silicon Valley Bank had more than $175 billion in deposits and $209 billion in total assets — but selling those holdings to meet demand for cash proved costly. That’s because the SVB had been loading bonds and government bonds, which fell in value as the Federal Reserve hiked interest rates.

The story goes on

While the FDIC insures deposits of up to $250,000, the vast majority of funds held at SVB far exceed that amount. The agency has announced that it will make 100% of protected deposits available on Monday.

The FDIC announced on Friday that the amount of uninsured deposits is still being determined. The watchdog said it will soon be paying an upfront dividend to uninsured depositors, with future payments later. Wall Street executives expect there will be a market for selling the rights to repay deposits.

‘Reduce pain

Behind the scenes, senior Wall Street executives have been playing out the value of the bank’s holdings and how much cash could be quickly hauled out without some sort of bailout or deal to sell all or part of the bank to a stronger institution.

In these circles, a payment of less than half, e.g. B. 30%, considered too little to avoid serious consequences in the technology sector and possibly beyond.

A partial upfront payment could bring at least some relief, William Isaac, a former FDIC chairman, said in a phone interview Saturday.

“It doesn’t completely eliminate the problem or pain, but it does make it a lot easier for the bank’s customers to deal with their losses,” said Isaac, who held the role from 1981 to 1985.

Deposits aren’t the only way SVB customers can fail. The bank also had $62.5 billion in loan commitments at the end of 2022, a number almost as large as its loan book.

The company did not provide a detailed breakdown of those commitments, but much of its lending was for lines of credit for capital calls. These facilities give venture capital and private equity firms the ability to tap cash to invest in a startup immediately, which is then repaid once money arrives from pensions and other investors who previously tied to the funds.

If those lines of credit were removed, it would likely limit the funds’ ability to invest quickly.

Read more about the impact: SVB rocks California’s tech founders and winemakers

The FDIC has laid the groundwork for a potentially lengthy sale process, according to senior executives at two investment banks who recently spoke to regulators.

An official told one company that despite efforts to find a solution quickly, a piecemeal sale over weeks or months is more likely, one of the people said.

The agency informally invited the other firm to submit proposals for specific assets, a second person said, prompting dealmakers to review the prospects for a variety of publicly disclosed holdings, such as: B. A desirable portfolio of loans to California wineries and vineyards.

Read more about the holdings: The SVB auction block includes VC-focused lenders and asset entities

–Assisted by Katanga Johnson, Amelia Pollard, Gillian Tan, Sonali Basak, Ed Ludlow, Matthew Monks and Michael J. Moore.

(Updates with background information on lending, discussions with investment banks from paragraph 13.)

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