Shareholders who suffered losses after investing in the U.S. Silicon Valley Bank (SVB) have filed a damages lawsuit against the bank's parent company. This is the first lawsuit filed since SVB's bankruptcy, and major foreign media outlets predict that similar lawsuits will follow, potentially turning this incident into a domino effect of litigation.
On the 13th (local time), according to major foreign media, SVB shareholders filed a class-action complaint in the federal court in San Jose, California, seeking damages from Greg Becker, CEO of SVB Financial Group, the bank's parent company, and Daniel Beck, the CFO.
The reason cited is that the shareholders suffered losses because the company failed to disclose the unique vulnerability of its asset structure to high interest rates, which was the background of the incident.
The shareholders argued that the incident stemmed from SVB's unique characteristics, which included having less cash-equivalent assets and a higher proportion of securities investments compared to the average U.S. bank. They demanded compensation for unspecified losses suffered by SVB investors between January 16, 2021, and June 10 of this year.
In the complaint, they claimed that the management did not disclose the fact that the business foundation vulnerable to rising interest rates and the customer base focused solely on startups put the bank in a more vulnerable position than other banks.
Unlike other large banks with a diversified customer base, SVB was concentrated solely on startups, and its asset composition was centered on bond assets vulnerable to interest rate hikes. Most notably, only 12% of its deposits were insured, making it more susceptible to a large-scale bank run (mass withdrawal of deposits). The shareholders argue that the company did not warn of the possibility of such risks in advance, resulting in their losses.
This lawsuit is the first to be filed since SVB's bankruptcy, and major foreign media report that similar lawsuits are expected to follow.
During the pandemic, SVB invested a large portion of the massive inflow of deposits from the venture boom into interest rate-related assets such as U.S. Treasury bonds rather than loans. However, due to the rapid interest rate hikes starting last year, losses on held bonds expanded, and deposit withdrawals accelerated, leading to a liquidity crisis and the bank's closure.
The day before, U.S. financial regulators announced that to prevent the collapse of SVB from escalating into a large-scale crisis like the 2008 financial crisis, they would guarantee all bank deposits in full regardless of insurance limits and provide loans to financial institutions facing liquidity shortages.
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