As SVB Financial Group wrestled with a capital shortfall and the prospect of a downgrade to its credit rating last week, it went to Goldman Sachs and worked out an unusual two-part plan
Yet for Goldman, the botched deal had a silver lining. The bond portfolio it acquired from SVB is now worth more, based on the drop in Treasury yields since the transaction happened. Traders not affiliated with the deal that were interviewed by Reuters estimated the gain in value to be in the hundreds of millions of dollars. A source familiar with details of a hedge that Goldman's trading desk put on the deal said the gain would be less than $100 million.
It is unclear whether Goldman has held onto all or part of the bond portfolio or sold it. Goldman declined to comment. SVB did not respond to a request for comment. In a regulatory filing on Tuesday, SVB said its bond portfolio sales to Goldman were done at "negotiated prices". Goldman was not paid the underwriting fee it had agreed for the stock sale because that deal fell through, two of the sources said. SVB has not disclosed how much that fee would have been.
Details provided by six people familiar with the attempted capital raise show that Goldman and SVB underestimated the challenges of pulling off the capital raise in terms of timing and investor interest. Only two private equity firms were ultimately invited to participate in the capital raise last week - General Atlantic and Warburg Pincus. SVB and Goldman hoped stock market investors would chip in for the remainder, four of the sources said.
Warburg Pincus turned down the deal, however, because it needed more time to carry out due diligence after it became concerned that SVB could still face long-term funding issues, two of the sources said. General Atlantic pledged $500 million, but walked away when the capital raise fell through.The banks also miscalculated how investors would react to the stock sale.
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