Silicon Valley Bank was shuttered by US regulators on Friday after a rush of deposit outflows and a failed effort to raise new capital called into question the future of the tech-focused lender.

With about $209bn in assets, SVB has become the second-largest bank failure in US history after the 2008 collapse of Washington Mutual, and marks a swift fall from grace for a lender that was valued at more than $44bn less than 18 months ago.

The Federal Deposit Insurance Corporation, the US regulator that guarantees bank deposits of up to $250,000, said it was closing SVB and that insured depositors would have access to their funds by Monday.

Many of SVB’s clients were venture capital funds as well as tech and healthcare start-ups, and would have account balances well in excess of the maximum amount insured by the FDIC. The regulator said these depositors would receive an initial payment next week and the rest would depend on what happens to SVB’s assets.

The regulator historically has sought to merge failed lenders with a larger and more stable institution. Washington Mutual, for example, was sold to JPMorgan Chase. The FDIC said it would use the sale proceeds of SVB to fund payouts to larger depositors.

The prices on SVB’s bonds plunged on Friday, with its senior debt trading at about 45 cents on the dollar and its junior debt as low as 12.5 cents, suggesting bondholders are braced for heavy losses.

Earlier on Friday, SVB had abandoned its efforts to raise $2.25bn in new funding to cover losses on its bond portfolio and had begun looking for a buyer to save it, according to people with knowledge of the efforts.

SVB shares were halted during early trading on New York’s Nasdaq exchange, and its woes hit shares in several other US banks that are seen to have similar depositor and funding profiles.

Trading in Pacific West, Western Alliance and First Republic were stopped due to volatility after they all initially fell 40 to 50 per cent. Trading was also briefly stopped in Signature Bank after its shares fell nearly 30 per cent. Several of those banks sought to reassure the market by putting out statements highlighting their differences from SVB in terms of asset and depositor base.

The banking group’s troubles stem from a decision made at the peak of the tech boom to park $91bn of its deposits in long-dated securities such as mortgage bonds and US Treasuries, which were deemed safe but are now worth $15bn less than when SVB purchased them after the Federal Reserve aggressively raised interest rates.

It had planned to sell $1.25bn of its common stock to investors and an additional $500mn of mandatory convertible preferred shares, which are slightly less dilutive to existing shareholders. That would have helped bridge the roughly $1.8bn in losses SVB incurred from the sale of about $21bn of securities initiated to cover customers withdrawing deposits.

On Thursday, SVB and its underwriter Goldman Sachs raced to complete the share offering. While Goldman had secured enough interest in the convertible bond deal by mid-afternoon, the common stock sale was struggling as SVB shares slid, according to one person with knowledge of the efforts. Private equity firm General Atlantic had also committed to provide $500mn in equity if the offering had been completed.

The bank’s shares registered their biggest-ever decline on Thursday, wiping $9.6bn off its market capitalisation. SVB shares had fallen more than 60 per cent in pre-market trading on Friday before the trading halt.

US bank failures have been extremely rare in recent years; the last FDIC insured bank to close was in October 2020, and the last time there were more than 10 was 2014.

The ramifications of SVB’s troubles may be widely felt. The lender is the banking partner for half of US venture-backed tech and life sciences companies, and is a large presence in offering credit lines to the $10tn private capital industry.

Its customers had begun to grow increasingly fearful of the bank’s financial position on Thursday, when some start-ups began pulling their cash. Some venture capital groups acknowledged that they had begun advising some of their portfolio companies to consider withdrawing a portion of their deposits from the lender earlier this week.

“SVB’s 40 years of business relationships supporting Silicon Valley evaporated in 14 hours,” said a senior executive at one multibillion-dollar venture capital fund.

Reporting by Joshua Franklin, Eric Platt, Ortenca Aliaj, Antoine Gara and Brooke Masters in New York and Tabby Kinder and George Hammond in San Francisco. Additional reporting by Stephen Gandel in New York and Robert Smith in London

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Original Article: ft.com

Germany and Italy have blown apart an EU plan to ban internal combustion engines by 2035, as the European car industry’s heartlands mount a fightback against ambitious carbon goals.

The two countries, the homes of Volkswagen, Fiat and Ferrari, are demanding exemptions for cars that run on synthetic fuels, potentially cushioning the blow for established industries.

Italy’s deputy prime minister Matteo Salvini described the delay as “a great signal” that rewarded efforts by his hard-right League party. “The voice of millions of Italians has been heard,” he wrote on Twitter.

The setback for Brussels underlines the political clout of the car lobby across Europe and its fears that the green transition will be costly to jobs

Porsche, part owned by VW, has long called for clean fuels that would allow it to sell its engine-powered sports cars for years to come, while Italy’s Ferrari has refused to set an end date for making supercars with engines.

Germany’s Bosch, which supplies engine systems to carmakers all over the world and is regarded as a laggard in battery technology, has also lobbied for synthetic fuels to be considered “clean” technology by regulators.

This week Rome swung behind the German ministry of transport, which had requested the special provisions for so-called e-fuelled cars, bowing to mounting political pressure at home.

E-fuels, which are produced using electricity from renewable hydrogen and other gases, are often considered “carbon neutral”. They can be used in normal combustion engines, thus prolonging the life of Germany’s traditional car manufacturing industry, which makes up about a fifth of the country’s industrial revenues.

“We need e-fuels because there is no alternative to operating our existing fleet in a climate-neutral manner,” Volker Wissing, the German transport minister, told ARD broadcaster.

The change in position at such a late stage has prompted anger among other capitals, which see it as a threat to the EU’s credibility on green legislation. The law had been agreed among member states last year and was approved by the European parliament this month.

The EU’s goals are part of a broader international push for net zero carbon emissions. The UK government has a still more ambitious target of banning sales of petrol and diesel cars from 2030, but concern has mounted in several countries about the impact on jobs of the transition.

The chief executive of Ford said last year that manufacturing electric vehicles will require 40 per cent fewer workers than petrol-powered cars and trucks, largely because EVs contain fewer parts.

Failure to adopt the curbs on combustion engines could severely hamper the EU’s effort to reach climate neutrality by 2050. Poland has already said it plans to vote against the law, and Bulgaria will abstain.

Germany initially agreed to the rules on the condition that the European Commission launched a review within two years into whether cars that run on synthetic or “e-fuels” could be allowed after 2035.

The debate has created deep divisions within German chancellor Olaf Scholz’s three-party government.

Wissing, whose pro-market Free Democrat party is staunchly in favour of the country’s car industry, on Thursday unexpectedly won the backing of the Green-run economics ministry.

German Green MEP Michael Bloss said the postponement of the vote was “an embarrassment for Germany”, adding that it was “creating chaos, making ourselves completely untrustworthy and becoming a brake on climate protection”.

The issue is expected to be raised by EU commission president Ursula von der Leyen when she attends a German government retreat at the weekend.

One person familiar with the discussions said Berlin wanted the commission to “move” by presenting a compromise that would be acceptable to all three German coalition partners. But the person added that no proposal had been received so far.

An EU official said: “It needs to be settled inside the German coalition. The commission is not the referee for internal coalition disputes.”

Additional reporting by Amy Kazmin in London

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Original Source: ft.com

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