It used to be the go-to bank for Silicon Valley. Now it’s on the block.
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But regulators seeking to sell off the remains of Silicon Valley Bridge Bank, instead of an exorbitant auction, have received a cool reception so far. Late last week, the FDIC auctioned off the SVB and was expected to announce a winning bidder on March 13. JPMorgan Chase And Bank of America apparently Is going through.
Now bids for Silicon Valley Bridge Bank and Signature Bridge Bank are due on Friday, a person familiar with the situation said.
Should the FDIC fail (again) to find a white knight to buy the entire bank, it will be forced to sell it piecemeal, and that’s where private equity comes in, a group of investors in an FDIC-friendly form. does not see from many alternative asset managers including black Stoneares and Carlyle Group Multiple sources familiar with the sale process said there is interest in the $74 billion loan book and are evaluating whether to bid. (Separately, the parent company of Silicon Valley Bank, SVB Financial Groupfiled for Chapter 11 Security in New York. Silicon Valley Bridge Bank is not part of the bankruptcy process.)
If private equity players are allowed to bid and they are successful, the transaction will not be considered a win from the government’s point of view. Both Blackstone and Carlyle started out as private equity firms, typically buying controlling stakes in companies, often using debt, and then selling them for a profit. Several large PE firms have gone public and ventured into buyout transactions in sectors such as credit, real estate and infrastructure. (Ares, by comparison, has always been a lender, but does private equity investing as well as real estate and wealth management.) Now called alternative asset managers, companies can make discounted-not-lost SVB loans. . Price, said a buyout executive. “I’m surprised there wasn’t more interest [for SVB]said the executive.
The process marks a major reversal for Silicon Valley Bank, once one of the most powerful lenders to venture startups. Founded in October 1983, SVB banks about half of Silicon Valley startups. As of December 31, its assets were $ 209 billion. More than half, or 56%, of its loans were to venture and private equity firms at the end of 2022, according to annual report, SVB too pioneered the use of enterprise creditwhich are Loans to Investor Backed Startups, according to the company’s website. The executive said that SVB caters to a strategically important market, which should make the bank significantly more valuable., “The fact that no one is stepping up worries me that there are [SVB] Debt problem,” said the executive.
According to buyout officials, the FDIC, with its auction of SVBs and signatures, would prefer to sell one bank to another because it cares about deposits. Regulators are concerned that buyers who are not regulated as bank holding companies may be using the deposits to do something risky. (federal Reserve observation and regulates all bank holding companies, according to the Federal Reserve Act of 1913.) This is one reason why the FDIC has sought other banks to buy them after previous bank failures. For example, in 2008 JPMorgan Chase acquired Washington Mutual after it fell for $1.9 billion. JPMorgan Chase also saved Bear Stearns when it bought the investment bank. $10 for a share In 2008 at the request of the US government. JPMorgan Chase Chairman and CEO Jamie Dimon later said he regretted buying Bear Stearns. JPMorgan Chase is not pursuing SVB or Signature this time. (On Thursday, several big banks including JP Morgan Chase agreed to provide A $30 billion bailout to First Republic to save the lender.)
PE firms certainly have the financial resources to get a deal done: Collectively they have $1.92 trillion in dry powder, or unallocated capital, according to Prekin, a data provider for the alternative asset industry. Private equity also has a long history of investing in financial services, including banks, but they cannot buy large stakes outright. Bank Holding Company Act of 1956, which gave oversight of banks to the Federal Reserve does not specify According to Todd Baker, former head of corporate strategy and development at three big banks, private equity but refers to a fund or company that owns 25% or more of a bank’s voting stock, or exercises a controlling influence. , is a bank holding company. and ex-partner at law firms Gibson, Dunn & Crutcher and Morrison Foster, who teaches fintech at Columbia Law School. This means that PE firms cannot acquire more than 24.9% of the voting equity of the bank without becoming a bank holding company. If they did, it would subject the bank to stricter activity restrictions, capital requirements and ongoing Federal Reserve supervision, which is “an untenable situation for PE firms,” Baker said.
Baker said that the Bank Holding Company Act also does not allow money to “act in concert”. Multiple private equity firms could theoretically invest in the same bank, but each would have to limit their stake to 24.9% or less and agree to other restrictions on their influence, such as not working together, he said. Said. “It doesn’t make sense for PE firms not to work together to achieve commercial success,” he said.
The buyout executive said the sale of SVB loans to an alt manager like Carlyle or Blackstone also does not bode well for SVB’s future. One venture executive said, “Someone else would buy the wealth management, investment banking, fund of funds business, but the commercial bank would be a very costly restart without any loans.”
Earlier this week, the board of SVB Financial Group named a restructuring committee to explore strategic choice SVB Capital and SVB Securities businesses as well as other assets and investments. SVB Capital and SVB Securities are not part of the bankruptcy. Their sales have generated “significant interest”. said in a statement dated March 17,
Private equity may not be the FDIC’s first choice for a buyer, but as the saying goes, sometimes beggars can’t be choosers.
This story was originally featured fortune.com
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