By Davit Kirakosyan
Goldman Sachs (NYSE:GS) is set to receive a hefty sum of over $100 million for its involvement in a bond purchase that failed to save SVB Financial Group from collapse, according to The New York Times report today. Goldman Sachs had been hired by the bank for advice on shoring up its books, but in the final days, it also bought a cache of the bank's debt that ultimately led to concerns about the bank's viability.
The failed lender booked a loss of $1.8 billion from the debt purchase, while Goldman Sachs is expected to receive a fee of more than $100M for buying $21.4B of Silicon Valley Bank's debt.
Goldman Sachs had multiple roles in Silicon Valley Bank's attempted rescue. When Moody's warned the bank of a possible downgrade, the bank sought advice from Goldman to help it shore up its books. Despite a two-part plan of raising capital and buying debt, the bank still collapsed.
According to the report, Goldman's compensation and its management of the relationship with the bank could raise concerns, particularly whether it operated at “arm’s length”. Goldman offered Silicon Valley Bank the chance to hire another adviser to work on the bond deal, but the bank declined. While banks often perform various roles for their clients, it raises questions in high-stakes situations like this, even if they claim to maintain the necessary walls between teams.
Despite heightened regulatory scrutiny and demands for clawbacks from Senator Elizabeth Warren and others, it's unclear whether Goldman's fee is directly relevant to these discussions. Typically, bankruptcy judges allow companies to pay for services before bankruptcy, as long as they are negotiated fairly and at “arm’s length.” It remains to be seen how a bankruptcy judge will view this situation, given the demands of the bank's creditors. If a clawback is granted, it's possible the money could go to the F.D.I.C.
A spokesman for Goldman declined to comment.
Goldman Sachs plunged more than 5% intra-day today.