According to one of the bank’s top executives, the new owner of Silicon Valley Bank is “fighting” to repair its damaged brand, stem the flow of deposits and stem the flow of money. Dozens of other bankers quit to join rivals as they try to rebuild the US tech bank that collapsed last month.
Peter Bristow, president of North Carolina-based First Citizens, which acquired SVB in a landmark deal brokered by federal regulators in March, told the Financial Times: We’re in the early days of getting them back up and running.
First Citizens will maintain the SVB name and operate the business as a separate unit of its own bank, which has a network of more than 550 branches across the United States.
However, it is struggling to restore the confidence and stature of SVB, which failed after an unlucky bet on long-term government bonds triggered a banking crisis in the US and Europe. and is expected to herald a tighter regulatory regime for banking globally.
“[SVB] was the number one bank for science and technology and life for more than 30 years and suddenly that disappeared, so we spent a lot of time trying to give people confidence that we were in banks and plan to continue operating their model. running,” Bristow said.
SVB in March experienced a deadly drawdown that led to it being taken over by the Federal Deposit Insurance Corporation and then sold in the biggest US banking crash since the financial crisis. 2008. Since then, First Citizens has tried to assure SVB customers and employees that it is “business as usual” — even as many want to withdraw, according to interviews with venture capital firm.
First Citizens, the largest family-controlled bank in the United States, more than doubled its assets to $219 billion with its purchase of SVB, taking it from the 30th largest bank in the United States to No. 16th place.
As an east coast bank with little venture capital experience, some Silicon Valley investors and founders doubt that First Citizens will provide the same critical infrastructure for the startup scene. technology industry. SVB is known for providing risky loans to struggling businesses based on decades of goodwill with their venture capitalists.
“A lot of the things SVB did – events, mortgages, venture loans – make no economic sense unless you see the entire lifecycle of the relationship,” said the head of a joint venture. billions of dollars in business. “They can do it because they know everyone in the ecosystem.”
As a newcomer to Silicon Valley, First Citizens had to first decide if they wanted to maintain a deep relationship with a tech community like SVB, which ultimately left them with a customer base. High concentration makes them prone to bankruptcy. About 95 percent of customer deposits exceed the $250,000 federal insurance limit.
It will have to encourage SVB’s bankers to stay at the bank to maintain those relationships as rivals try to enter its market, with their payment plans stripped. take the lucrative share bonus of SVB. HSBC, which acquired SVB’s UK business, hired 40 of SVB’s US bankers this month, while MUFG hired 20 last week.
Keeping your customers can prove more difficult. SVB has continued to lose deposits in the weeks since the bank went online on March 9. First Citizens disclosure to investors showed SVB had $56 billion in deposits when it was acquired, less than about $134 billion compared to the beginning of the year.
“We are still seeing cash outflows,” Bristow said, citing the impact of pent-up demand for withdrawals over a two-week period when the bank was hit by regulators. close the door. “I have to admit that it will be rebuilt. . . but we did see green shoots.”
First Citizens is trying to rebuild SVB as tech startups face the biggest collapse in value since the dotcom bubble burst in the early 2000s. So far, management Its strategy has offered little clarity on its strategy for navigating the downturn, remaining mired in weeks-long appraisals as a result of quick acquisitions.
The tech downturn could put First Citizens in a difficult position as it looks set to lure top Silicon Valley tech investors back to the bank.
More than half of SVB’s $72 billion in loans is financed by venture capitalists investing in startups. It also lends money to startups directly, receives warrants to secure equity in their businesses, and asks them to bank exclusively with SVB.
Bristow suggested that First Citizens might reconsider SVB’s lending to venture capitalists and the companies they back. “Much as [venture lending] is the core tenet of what SVB has done, the question is, does it create a clump in deposits that you might not want?” he say.
However, SVB’s venture-debt business has become an important part of Silicon Valley’s financial infrastructure. As one venture capitalist put it: “We need SVB to help us with struggling companies.”
First Citizens will take advantage of its history of buying other banks — it has bought 15 of them from FDIC ownership over the past 15 years — when it begins integrating SVB into its operations later this month. Still, the SVB deal is its largest-ever acquisition, outstripping the $2 billion deal to buy CIT Group for business loans for $2 billion in 2015. 2020.
One issue would be aligning First Citizens leadership with the culture of SVB. SVB began during the IT boom of the 1980s and grew with Silicon Valley, appreciating the empathy of cash-strapped customers and a culture akin to the start-ups it created. serve. Meanwhile, First Citizens is a 125-year-old family dynasty: The bank is run by a board that includes chief executive Frank Holding and his sister, vice chairman Hope Bryant, the third generation of subsidiary Holdings. business responsibility. Bristow’s wife, Claire, is their sister.
Bristow eased worries about a possible clash. “Culture is my least concern,” he said. “We are both based on the relationship first.”
However, venture capitalists have privately expressed doubts that new owners will be able to recreate “SVB 2.0”.
Ultimately, the problems that led to SVB’s demise were the balance sheet risk management, not the ambition to capture tech and startup banking. Bristow believes that First Citizens’ unusual family ownership means its management is not likely to make the same balance sheet errors as SVB’s former management.
“The risk aversion that comes with owning a large portion of a bank. . . is a competitive advantage,” he said. “It is different from externally regulated banks [where] Sometimes opinions and priorities can get out of hand.”