Silicon Valley Bridge Bank, once a go-to bank for the tech industry, is now up for sale by regulators after no winning bidder materialized during an FDIC auction held last weekend. With bids now due on Friday, private equity firms such as Blackstone, Ares, and Carlyle Group are showing interest in the $74 billion loan book, despite the FDIC’s unfavorable stance towards them. The regulator would prefer to sell the bank to another bank in order to protect deposits, but may have to sell it off piece by piece if no buyer comes forward. The process is a major reversal for Silicon Valley Bank, which once boasted half of Silicon Valley startups as its clients.
Important Details about If the Feds fail to find big banks to buy SVB and Signature, the likeliest buyers are the one group they don’t want to sell to –
– Silicon Valley Bridge Bank is up for sale by the FDIC due to financial difficulties.
– Regulators prefer to sell the bank to another bank, but large banks like JPMorgan Chase and Bank of America have apparently passed on bidding.
– Private equity firms like Blackstone, Ares, and Carlyle Group are interested in the $74 billion loan book and are evaluating bids.
– The Bank Holding Company Act of 1956 restricts private equity firms from owning more than 24.9% of a bank’s voting equity without becoming bank holding companies subject to Federal Reserve oversight.
– SVB Financial Group, which owns Silicon Valley Bridge Bank, filed for Chapter 11 bankruptcy protection in New York but Silicon Valley Bridge Bank is not included in the bankruptcy process.
– SVB used to be a go-to bank for Silicon Valley startups and pioneered venture debt but has since fallen on hard times.
– SVB Capital and SVB Securities, which are different from Silicon Valley Bridge Bank, are also up for sale with significant interest.
It Used to Be the Go-To Bank for Silicon Valley. Now It’s on the Block.
Silicon Valley Bank, once the preferred bank for Silicon Valley startups, is up for sale. The FDIC held an auction last weekend to sell off Silicon Valley Bridge Bank, a subsidiary of Silicon Valley Bank, but was met with a cool reception as no single buyer came forward. The FDIC is now accepting bids for both Silicon Valley Bridge Bank and Signature Bank until Friday. If the FDIC fails to find a buyer for the whole bank, it will be forced to sell it off piecemeal, and private equity firms are interested in the $74 billion loan book.
Silicon Valley Bank was founded in 1983 and, at its peak, banked nearly half of all Silicon Valley startups. As of December 31, the bank had $209 billion in assets, with more than half of its loans going to venture and private equity firms. The bank was also a pioneer of venture debt, which are loans to investor-backed startups. However, the lack of interest in the auction has raised concerns that there may be loan problems.
The FDIC would prefer to sell a bank to another bank because it cares about the deposits, and regulators are concerned that buyers who aren’t regulated as bank holding companies could use the deposits to do something risky. Therefore, private equity firms, which are not considered bank holding companies, would have to limit their stakes to less than 25% and cannot acquire more than 24.9% of a bank’s voting equity without becoming bank holding companies, which would subject the bank to onerous activities restrictions, capital requirements, and ongoing Federal Reserve supervision.
The sale of loans to an alt manager like Carlyle or Blackstone also doesn’t bode well for the future of Silicon Valley Bank as a whole, as someone else would buy wealth management, investment banking, fund of funds business, but the commercial bank would be a very expensive restart with no loans.
The sale of Silicon Valley Bank marks a major reversal for the bank, which was once one of the most powerful lenders for venture startups. However, as they say, sometimes beggars can’t be choosers.