SVB Financial probes potential fraudulent activity by Silicon Valley Bank client

Santa Clara, Calif.-based SVB Financial Group is working with the appropriate law enforcement authorities to investigate potentially fraudulent activity conducted by a client of unit Silicon Valley Bank related to a loan transaction funded in early February.

SVB Financial Group is investigating the incident to determine its potential credit exposure, which is estimated to be up to $70 million, net of tax. The incident relates to a Global Fund Banking capital call line of credit and the company intends to pursue all available sources of recovery and other measures to mitigate potential losses, according to a Form 8-K filing.

The company believes the incident is "an isolated occurrence involving a single business relationship."

The disclosure "caught us off guard," Stephens Inc. analyst Andrew Terrell wrote in a note, as the asset class affected has been viewed as "incredibly low risk" due to having $0 in charge-offs since its inception. Terrell noted however the he sees this as a "one-off issue."

After-tax losses should be offset by the company's net gains on investment securities and equity warrant assets for the first quarter of 2021, Terrell added, which the company said is expected to be in the range of $230 million to $300 million, on a pretax basis.