top of page

"The KPMG Connection: Why Are So Many US Banks Failing?"

- Introduction

- KPMG banking clients

- List of KPMG Clients (Finance Sector)

- 2023 Banking Crisis: The KPMG Connection





Introduction

KPMG LLP, commonly referred to as KPMG, is one of the Big Four accounting firms, along with Deloitte, PricewaterhouseCoopers (PwC), and Ernst & Young (EY). KPMG provides professional services in the areas of audit, tax, and advisory. The firm operates globally, serving clients in various industries, including financial services, technology, manufacturing, healthcare, and more. KPMG is known for its financial reporting, risk management, regulatory compliance, and business consulting expertise. With a focus on delivering quality and value to its clients, KPMG plays a significant role in the accounting and professional services industry.


KPMG Banking Clients


In 2023, KPMG garnered attention for its audits of prominent banks involved in major financial crises. According to FT.com, KPMG derives 14% of its audit fees from publicly traded banks, making it a significant player in this sector. In comparison, PwC accounts for 8% of public company audit fees, Ey for 3%, and Deloitte for 2%. This highlights KPMG's substantial presence and involvement in auditing services within the banking industry.


KPMG's long-standing relationship with Silicon Valley Bank dates back to 1994, as stated in the bank's recent proxy statement. In 2022, KPMG earned $12.5 million in audit fees from Silicon Valley Bank, followed by $12 million in 2021. Similarly, KPMG has been the auditor for Signature Bank and First Republic Bank, starting from 2010 and 2007, respectively. In 2021, KPMG received $6.5 million in fees from First Republic Bank, followed by $6 million in 2020.


Regulators have raised concerns regarding the need for stricter regulations on financial disclosures for banks. They have also questioned whether KPMG adequately assessed the risks faced by these banks, particularly in the context of rising interest rates. The practice of lending money at low interest rates while the Federal Reserve increases rates has led to a significant outflow of deposits from banks, posing solvency challenges for smaller institutions.


The possibility of additional banking failures looms in 2023, raising questions about whether KPMG will continue to serve as auditors for these companies. The auditing firm's role in questioning regional banks, such as Pacwest Bancorp, has also come under scrutiny. KPMG's latest audit for Pacwest Bancorp yielded audit fees of only $2.7 million.


As the banking landscape evolves, it remains to be seen how KPMG's role as an auditor for these institutions will unfold in the future.


KPMG'S other notable large Banking clients








2023 BANKING CRISIS: THE KPMG CONNECTION


The auditor gave financial statements of Silicon Valley Bank, Signature Bank and First Republic Bank a clean bill of health as recently as the end of February


In the past three months, the United States experienced the unfortunate occurrence of three bank failures, all of which shared a common factor - KPMG. Despite KPMG providing a positive assessment of the financial statements for Silicon Valley Bank, Signature Bank, and First Republic Bank as recently as the end of February, these banks encountered significant challenges leading to their failure.


These Banks collapsed just days after KPMG signed off on its audit




On February 24, KPMG signed the audit report for SVB Financial Group, the parent company of Silicon Valley Bank. However, on March 10, regulatory authorities intervened and took over the bank due to a significant outflow of funds, which posed a risk of insufficient cash reserves



KPMG LLP AND Related parties Sued by SVB Investors


KPMG LLP, the auditor for Silicon Valley Bank, faced a lawsuit in April along with underwriters including Goldman Sachs Group Inc., Bank of America Corp., and Morgan Stanley & Co. The investor lawsuit alleged that misstatements made by these parties led to the collapse of the bank.


The lawsuit claimed that KPMG's audit report did not address the potential "substantial doubt" about the bank's ability to continue as a going concern for a reasonable period of time.


As for Signature Bank, its heavy reliance on the crypto industry resulted in a surge of deposits that reversed when the market faced challenges. Since a significant portion of its deposits were uninsured, customers were more likely to withdraw funds at the first sign of trouble.


Recently, JPMorgan Chase & Co reached an agreement with the US Federal Deposit Insurance Corp (FDIC) to acquire most of the assets of First Republic Bank, based in San Francisco.


Additionally, First Republic Bank faced a lawsuit from shareholders who accused the troubled regional bank of concealing the risks posed by rising interest rates, which prompted a mass exodus of deposits. The lawsuit in San Francisco federal court alleged that First Republic and its auditor KPMG misrepresented the bank's balance sheet strength and liquidity.



Reference

KPMG is common factor among 3 US bank failures in last 2 months; here’s how (2023) Business Today. Available at: https://www.businesstoday.in/latest/world/story/kpmg-is-common-factor-among-3-us-bank-failures-in-last-2-months-heres-how-379871-2023-05-03 (Accessed: 04 June 2023).


KPMG clients list 2020 * (who are KPMG’s largest clients - 2020) (2023) The Big 4 Accounting Firms. Available at: https://big4accountingfirms.com/kpmg-audit-clients/ (Accessed: 04 June 2023).









10 views0 comments
bottom of page