SVB Financial Group and two top executives were sued by shareholders over the collapse of Silicon Valley Bank, as global stocks continued to suffer on Tuesday despite assurances from US President Joe Biden.
The bank’s shareholders accuse SVB Financial Group chief executive Greg Becker and chief financial officer Daniel Beck of covering up how rising interest rates would make his Silicon Valley Bank unit “particularly vulnerable” to a bank run.
The proposed class action lawsuit was filed Monday in federal court in San Jose, Calif.
It appeared to be the first of many likely lawsuits over the demise of Silicon Valley Bank (SVB), which US regulators seized on March 10 after a wave of deposit withdrawals.
The news came as shockwaves from the collapse of SVB hit global banking stocks again on Tuesday, with pleas for calm from Biden and other policymakers doing nothing to reassure markets and prompting some analysts to rethink their outlook on interest rates.
“Americans can be assured that our banking system is safe. Your deposits are safe. Let me also assure you that we will not stop there. We will do whatever is necessary,” Biden said Monday.
Biden’s comments, along with emergency US measures to guarantee SVB customer deposits and bolster banks by giving them access to additional funding, have not allayed investors’ worries about possible contagion in the sector. banking.
Banking stocks in Asia extended their decline on Tuesday, with the Japanese banking sub-index leading the fall, down 6.7% in early trading to its lowest level since December.
“Bank runs started (and) interbank markets became stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Arguably the liquidity measures should have stopped this momentum, but Main Street looked at the news and the queues – not the financial plumbing.”
Ratings agency Moody’s on Monday downgraded the ratings of collapsing Signature Bank debt and placed the ratings of six other U.S. banks on watch for downgrade.
The banks placed under review for downgrading were First Republic Bank, Zions Bancorporation, Western Alliance Bancorp, Comerica Inc, UMB Financial Corp and Intrust Financial Corporation.
Moody’s, which rated Signature Bank’s subordinated debt “C”, said it was also withdrawing the collapsed bank’s future ratings.
In Monday’s lawsuit, shareholders led by Chandra Vanipenta said Santa Clara said California-based SVB failed to disclose how rising interest rates would undermine its business model and leave it in a worse situation than banks with different clienteles.
SVB had surprised the market two days earlier by revealing an after-tax loss of $1.8 billion on investment sales and that it planned to raise capital, as it scrambled to meet the demands of customers who wanted to access their deposits.
SVB held about $209 billion in assets and $175.4 billion in deposits before its collapse in the largest US bank failure since the 2008 financial crisis.
Its collapse raised fears that other banks could be vulnerable to rising interest rates due to overexposure to falling bond prices.
The lawsuit seeks unspecified damages for SVB investors between June 16, 2021 and March 10, 2023.
SVB said on Monday it would explore strategic alternatives for what remains of the company, now deprived of its main banking business.
The FDIC on Monday named Tim Mayopoulos, the former head of Fannie Mae, as chief executive of Silicon Valley Bank. According to TechCrunch, a statement sent by Mayopoulos to customers said the bank is “acting as if nothing has happened.”