SVB shareholders launch D&O class action

Shareholders have launched the first class action against US tech lender Silicon Valley Bank (SVB), its CEO Greg Becker and CFO Daniel Beck for misleading investors ahead of the bank’s collapse.

The action claims the company and its executives failed to disclose the risk of rising interest rates to the bank’s business model.

Brought by Rosen Law Firm on behalf of shareholders led by Chandra Vanipenta, the case claims investors bought shares between June 2021 and March 2023 at “artificially inflated prices”. It says the company consistently underestimated the risk of rising interest rates in its regulatory filings as recently as February 2023 in its 2022 annual report. This was despite clear indications from the US Federal Bank that the base interest rate was going to increase.

“The company failed to disclose to investors the risks presented by impending rising interest rates… that, in an environment with high interest rates, it would be worse off than banks that did not cater to tech startups and venture-capital-backed companies… that, if its investments were negatively affected by rising interest rates, it was particularly susceptible to a bank run,” the claim said in its submission to the US Northern District of California Court.

Similar lawsuits are expected to follow. The D&O insurance market is braced for the fallout from SVB and collapse of Signature Bank on Sunday.

US regulators have taken swift action to limit contagion risk by assuring customers they will get access to their deposits. President Joe Biden said he would do “whatever it takes” to protect the banking system in a further bid to calm markets. However, bank shares tumbled in the US, Asia and Europe yesterday.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘’A sea of red has descended on indices as banking stocks continue to be sideswiped in the wake of SVB’s collapse and worries reverberate about the tech sector’s fragility.”

Moody’s yesterday placed the debt ratings of six US banks under review for a potential downgrade. The banks are First Republic Bank, Zions Bancorporation, Western Alliance Bancorp, Comerica, UMB Financial and Intrust Financial.

European governments also took measures to address the fallout following the collapse of the two US banks in quick succession. The UK government and regulators backed HSBC’s bid to buy the UK banking arm of SVB to preserve financial stability. France’s finance minister Bruno Le Maire said the French banking system does not have exposure to SVB and urged investors to “calm down”. The EC’s economy commissioner Paolo Gentiloni played down “significant risk” of contagion.

But Streeter said European bank shares were “battered by worries about malaise spreading”.

“Although the deposit backstops from US regulators have quelled fears of wide contagion in the financial sector, eye-watering falls in the share prices of smaller regional banks demonstrates the loss of shareholder confidence,” she said.