SVB’s Wealth Unit Will Be Sold As Part of FDIC’s Auction
Over the weekend, the U.S. Federal Deposit Insurance Corp. started auctioning off the remnants of SVB Financial, which includes SVB Private, its $17 billion wealth management unit that includes the bank’s 2021 acquisition of Boston Private Financial Holdings, according to Bloomberg. Final bids were due Sunday.
Silicon Valley Bank collapsed last week after a significant number of tech startups and venture capital-back companies, fearing a lack of liquidity, withdrew their money. The FDIC seized the assets of the firm, in the biggest bank failure since 2008.
On Sunday, federal regulators said they would take steps to make SVB depositors whole starting Monday, March 13. The regulators also announced a similar plan for depositors of Signature Bank, a New York-based regional bank that also shut down.
The sale of SVB includes its wealth management division, SVB Private. It is the group’s smallest unit, accounting for just 8% of SVB’s 2022 revenue, according to CFRA. With $17 billion in assets, the wealth management division offers private banking, lending, brokerage and wealth management and investment advisory services. They serve private equity and venture capital professionals, executive leaders of the innovation economy, and high-net-worth clients. The unit also provides loans to vineyard developers.
The firm custodies with Fidelity, Schwab and SVB, according to its latest Form ADV. Shares of Charles Schwab are down 32% in the last five trading days. But according to the filing, the firm doesn’t use those custodians for cash sweeps on brokerage accounts, instead putting the client’s idle cash into its own bank accounts.
The movement by the FDIC could see the bank’s wealth management division absorbed into a larger institution, at least at first.
“I think the announcement of the support is huge, in terms of the intervention saying ‘We’re going to make all depositors whole,’” said John Langston, founder and managing partner at Republic Capital Group, which provides investment banking services to the RIA, wealth and asset management communities. “In theory, the wealth management business could be sold off quickly but it’s not big enough to solve the problem.”
Langston said that one possible scenario could be that all of SVB is sold a large bank, such as JP Morgan, out of the need for speed. It’s most likely that the wealth management unit would be spun off after a bank purchases SVB.
“If I’m JP Morgan, I already have my own wealth management platform. I don’t want to try to merge in a smaller platform that’s very different from me,” he said. “In my mind, it would be very large bank buys SVB and then after some period of time—could be 30, 60, 90 days—the wealth management unit would be spun off.”
There was some speculation on Twitter as to who might be a possible buyer for SVB Private. Shana Orczyk Sissel, founder and CEO of Banrion Capital, said she could imagine Hightower or Dynasty Financial Partners stepping in to buy it. Tyrone Ross Jr., CEO and co-founder of Turnqey Labs and president and founder of 401 Financial, wrote that it would be “a very appealing asset for one of the large adviser strategic acquirers.”
SVB purchased Boston Private in 2021 for $900 million. One shareholder of Boston Private, HoldCo Asset Management, which owned 4.9% of Boston Private’s shares, protested the acquisition at the time. The investor claimed the price was too low for a regional bank, and was prompted largely by Boston Private executives’ misguided pursuit of a wealth management strategy that HoldCo principals called “a pipe dream.” HoldCo felt Boston Private’s shares should have been valued at $13.50 to $17 instead of the $11.50 price it saw the day after the sale was announced.