One of the many mysteries surrounding the recent banking crisis is the two institutions in trouble, Silicon Valley Bank and
First Republic Bank
,
are located in the San Francisco Bay Area – the first is located in Santa Clara at the southern end of Silicon Valley and the second is located in the city itself, about 47 miles to the north.
While there may not be a direct connection between these two banks – and to be clear, as of this writing, the Silicon Valley bank failed and First Republic (ticker: FRC) did not – there are some interesting similarities, and finally, Perhaps a flawed common denominator when it comes to understanding and managing their customers.
Although they were founded just two years apart—Silicon Valley Bank in 1983 and First Republic Bank in 1985—and are relatively young companies, First Republic has positioned itself as an old-school, white-shoe institution. . FRB—with its long-running advertising campaign showcasing high-net-worth clients—has (mostly) an elite retail and business clientele Rich Enclave on the Beaches), which it has served well. As such, First Republic has been well received by investors.
FRB was most recently run by its co-founder, James H. Herbert II, who last year replaced Michael J. Roffler took over the reins. Herbert, the son of the CEO of a bank in Coshokton, Ohio, had a singular vision for the bank, which has been described as in this extensive history, “Jim is like a politician,” a customer at the bank told me. “She’s really polished. One time she found out my wife and I were visiting New York City and mailed tickets to our hotel for a Lincoln Center performance.
An important chapter in the story of the First Republic was a recent and crucial four-year period. In 2007, Merrill Lynch bought First Republic. The following year Merrill was bought out by
Bank of America
(BAC) during the financial crisis. The following year, in 2009, BofA sold the bank to General Atlantic, Colony Capital and Herbert. And in 2010, Herbert again took First Republic public, and the bank re-entered the race.
no wonder Herbert was brooding and proud of his Inducted into the Bay Area Business Hall of Fame last November. “We’ve grown about 20% a year for 25 years, managed 30% growth in money management, and the share price has done well; It’s outperformed the S&P,” Herbert told a packed house. The stock was in the low-$100 range at the time. Recently trading around $30, the stock hit a low of $17.53 earlier this week.
Banking is a humbling business. or is it?
One would think that First Republic’s stock rebound was at least in part due to the bank receiving a commitment for $70 billion in financing through JPMorgan Chase (JPM) last weekend. “Our First Republic banker told us on a call [on Monday]they really didn’t need the $70 billion,” says Dan Mummery, a board member representing a private club in the Bay Area. “So they say.”
Herbert and Roffler tried to reassure customers amid this week’s turmoil. “As we have done since 1985, we emphasize safety and stability at all times while maintaining a well-diversified deposit base,” he said in a statement.
Board of the First Republic, which includes longtime member Tom Barrack — the former CEO of Colony Capital and friend of Donald Trump — along with Stanford and Ivy League graduates and members of the boards of blue-chip nonprofits like Lincoln Center, as well as the San Francisco Ballet and the Council are members of. on foreign relations. senior management (at least men) Everyone is wearing a tie in their beautiful pictures on the First Republic website.
Silicon Valley Bank, on the other hand, adopted the start-up culture of its namesake, dominating the banking services business (lending, payroll and cash management) for the tech industry in the Bay Area.
svb
different aspects of the tech business—software, hardware, life sciences, etcetera—structured their business groups to align with one Liquor Department, It seems to have figured majorly for Optics, if not from a P&L perspective.
“They’re known for the wine business,” Roger McNamee, a Silicon Valley investor, told me. “They always have these fancy wine shindigs,” adds one customer. Not surprisingly, most of the male senior leadership of the SVB not wearing a tie on its website In his low-resolution, silhouetted shots.
The former CEO of Silicon Valley Bank, Greg Baker — who was replaced by the FDIC on Monday by Tim Mayopoulos — was at the bank for 30 years and CEO since 2011. Baker could not be reached for comment.
Baker, like Herbert, is another Midwest transplant, in his case originally from Fort Wayne, Ind.
“Greg is a typical Silicon Valley guy,” says a chief financial officer who knows both Baker and Herbert. “Greg is very entrepreneurial, very aggressive and ambitious in building the bank over many years. Much more than Jim Herbert’s traditional banking culture.”
Baker took up competitive cycling, a favorite form of competitive pastime among the Silicon Valley elite. This from Carl Guardino, CEO of the Silicon Valley Leadership Group in 2015. Silicon Valley Business Journal article,
“Greg … is an avid competitive cyclist. He brings discipline and a keen competitive drive to what he does.” Guardino recalled the 100-mile, Carmel-to-Hurst Castle bike race that Baker did five years ago on his birthday. “Not only did he win that race, but he raised half a million dollars for Best Friends Charity,” he said.
was on the board of Baker Silicon Valley Leadership GroupA low-profile, non-profit organization founded by tech pioneer David Packard that bills itself as a more inclusive chamber of commerce.
As for the top management and board of Silicon Valley Bank, they are not the same as First Republic. There are very few Ivy League degrees, and SVB’s board includes people like Eric Benhmau, the former CEO of 3Com (remember him?). Of course the fancy people and fancy pedigree didn’t save the First Republic from a near-death experience—though the blue-chip connection may have helped the FRB secure a lifeline and avoid the SVB’s fate.
We’ve established that First Republic and Silicon Valley Bank are different animals. But are there any commonalities other than geographic proximity and a CEO with Midwestern roots? As it turns out, yes there are. For one, the two banks share a regulator, Federal Reserve Bank of San Francisco, which oversees the 12th Federal Reserve District. It includes the nine western states—Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, and Washington—plus American Samoa, Guam, and the Northern Mariana Islands. Run by CEO Mary Daly since 2018, the 12th is the nation’s largest by geography and economic size.
Baker served on the nine-member Board of Governors of the San Francisco Fed. Baker was one of three bankers, or Class A directors, who are elected by fellow bankers and do not choose the leadership of the Reserve Bank. Baker, who had served since 2019, was fired Friday when the bank failed. His photo has apparently been removed and replaced with a placeholder image Below which is written “Vacant Seat”.
(The Wall Street Journal reported on Tuesday that The Securities and Exchange Commission and the Department of Justice are probing the SVB failure., As part of the probe, investigators are looking into stock sales made by executives prior to the company’s closure.)
Was there a failure of oversight by the San Francisco Fed? You certainly can make that case, though it’s worth noting
signature bank
In New York, in the second district, this week also failed.
In late November, venture-capital fund Greenoaks Capital warned its portfolio companies in an email about potential problems at both Silicon Valley Bank and First Republic. A person close to Greenoaks said,[Greenoaks] Not bank examiner or bank investor. [They’re] Technical Investor. It makes you wonder what Daly and his companions were seeing. Daly declined to comment, citing the blackout period ahead of the March 21-22 meeting of the Federal Open Market Committee.
Beyond the regulatory tie, Silicon Valley Bank and First Republic share little else in common. “They both served wealthy people here in the Bay Area,” says a prominent tech venture capitalist who knows both banks. “It has been a very loyal customer base, and I think it made both banks overconfident. They never believed that their customers would withdraw their cash, and they either got lazy or deliberately took on more risk, thinking that their customers were trapped. But rich people also want yield.
They also want executives who keep their eye on the ball, or at least on their balance sheet.
Write to Andy Server at [email protected]