U.S. regulators are willing to entertain the possibility of backstopping losses at Silicon Valley Bank and Signature Bank if it helps push through the sale of failed lenders, people briefed on the matter said.
The Federal Deposit Insurance Corporation’s willingness to discuss loss-sharing marks a significant change in the position of the agency, which last week categorically rejected any such arrangement when it tried and failed to auction SVB.
However, the FDIC has given bidders no indication of the size of losses it is willing to backstop or any understanding of how the arrangement will be structured, the people said.
An SVB or signature sale can trigger immediate losses because the new buyer will have to mark down the value of some assets to reflect their current market value.
After seizing control of SVB and Signature last week, the FDIC tried to auction off the banks to a buyer but failed to get much interest, receiving only one offer from a bidder outside the banking sector that was rejected.
The lack of interest was in part because the agency was unwilling to discuss the possibility of taking any losses on lenders’ assets, one of the people said.
Buyout titans like Blackstone Group and Apollo Global Management have shown interest in buying parts of SVB’s loan book. However, the FDIC is willing to take bids from banks for the entire SVB Commercial Bank, including only loans and deposits, according to people involved in the process.
On Friday, SVB’s holding company filed for bankruptcy protection. The move was part of an effort to preserve the value of two divisions — the broker-dealer and the technology investment business — that are separate from the deposit-taking bank.
The FDIC declined to comment on any specifics of the SVB and signature sales process, which is run by bankers at Piper Sandler. A banker at Piper Sandler involved in the sale process declined to comment.
“We are actively marketing both institutions,” an FDIC spokeswoman said. “We haven’t set a deadline for the bid, but we hope to have it resolved within a week.”
Loss-sharing agreements are common in FDIC sales. The FDIC offered generous loss-sharing agreements to a number of deals during the 2008 financial crisis, but later came under criticism when some of the deals proved attractive to buyers.
Agreeing to a loss-sharing arrangement could also open the government to accusations that its efforts to rescue some banks are in effect a bailout.
Most loss-sharing agreements are set up as a type of insurance that will limit the overall potential loss the buyer may incur from the deal, with the government covering anything over that amount. But the FDIC has sometimes agreed to take 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