There is a private banking business of some size in the mix. In 2021, Silicon Valley Bank completed its $900 million acquisition of Boston Private, a wealth management, trust and banking services provider. This news service knows SVB Private’s senior figures and has interviewed them about family offices, and other aspects of the sector. 

(Updated with HSBC transaction.)

The rapid collapse last week of Silicon Valley Bank in the US – a business that owns private banking services – has shocked investors and revived memories of the 2008 financial train wreck. There is a separate UK-based entity that was placed under Bank of England control; as of this morning (13 March) it was sold for £1 ($1.21) to HSBC's UK-based business, ending uncertainty about the bank's future.

The bank’s troubles surfaced in the middle of last week. Your correspondent was in Zurich for this news service’s awards events for Swiss external asset managers. The local news chatter was dominated by how Credit Suisse had delayed publication of its annual 2022 report following a call with the Securities and Exchange Commission. (This hasn’t been a good week for banks.) But by the time I awoke bleary-eyed on Friday morning, the newswires were hot with news that SVB Financial Group – the name of the US-listed holding company – was in deep trouble. The bank's shares ended down more than 60 per cent, at $106.04. Shares of the wider banking sector were dragged down. The US Dow Jones US Banks Index ended down 0.81 per cent on Friday.

Silicon Valley Bank organisation is the 16th largest bank in the US and has now been taken under federal government control. While not in the bulge-bracket league of a JP Morgan or Citigroup, its demise sheds light on the stresses in the US technology sector, and in areas such as venture capital that have been hot topics for wealth managers in recent years. With its name, Silicon Valley Bank, founded in 1983, it is symbolic of the glories of northern California’s technology powerhouse. After the slump in equities of 2022, with “Big Tech” very much in the firing line as central banks hiked rates, it appears that stresses on tech firms have hit home. On top of all that, California's image has suffered from an exodus of business and talent to lower-taxed states such as Texas and Florida.

According to Reuters yesterday, some financial industry executives and investors were growing increasingly concerned that the bank’s plight could have a domino effect on other US regional banks if regulators do not find a buyer to protect uninsured deposits. It is the largest bank to have failed since 2008. One result is that billions of dollars are owed to investors and clients, with no immediate sign of how or if that is to be repaid.

The Federal Deposit Insurance Corporation (FDIC), which was appointed as receiver, was trying to find another bank over the weekend that was willing to merge with Silicon Valley Bank, the news service quoted unnamed sources as saying.

The bank has a footprint in Europe. The Bank of England put the UK arm of Silicon Valley Bank into a Bank Insolvency Procedure - the business was, as reported above, bought for a nominal sum by HSBC, easing fears of clients worried about their deposits. Under the Bank of England arrangement, customers would have received £85,000 ($102.289) per account, or up to £170,000 for joint accounts, from the deposit insurance scheme, while remaining assets would be managed by liquidators.

Financial figures
In its 19 January release of full-year 2022 and fourth-quarter 2022 results, SVB Financial Group said “consolidated net income available to common stockholders” was $275 million in Q4, sliding from $429 million in the third quarter and falling from $371 million a year before.

CEO Gary Becker issued a statement, as part of the results release, that contained little hint of clouds on the horizon: “In the fourth quarter, client cash burn and the pace of VC investment decline both moderated. We saw solid growth in loans and core fees, better-than-expected net interest income, and healthy investment banking activity driven by biopharma deals. While broader market conditions are limiting growth and driving somewhat higher credit costs, we continue to see strength in our underlying business, and a balance by our clients between near-term expense discipline and preparation for a return to investment and deployment. Until that shift occurs, we believe we remain well positioned with a strong balance sheet and the resources and expertise to manage successfully through the current environment.” 

The private banking angle
There is a private banking business of some size in the mix. In 2021, Silicon Valley Bank completed its $900 million acquisition of Boston Private, a wealth management, trust and banking services provider. This news service knows several of SVB Private’s senior figures and has interviewed them about family offices, and other aspects of the sector. 

A few days ago, this publication spoke to John Longley, head of private bank, wealth, and trust business at SVB Private. We were in the process of verifying quotes and other details with a view to publishing a story in a matter of days. SVB Private has not returned emails to enquiries about updates given last week’s events. A question is what SVB Private clients do about any unprotected money they have.

The US Federal Reserve and the FDIC were thinking of creating a fund to allow regulators to “backstop” more deposits at banks that run into trouble (source: Bloomberg).

The Reuters report noted that Silicon Valley Bank had an unusually high level of deposits that were not covered by the FDIC's guarantees, which are capped at $250,000.

Since the 2008 crash, there has been much debate on whether the prospect of bailouts and government protections paradoxically made the banking system more vulnerable by encouraging risk taking. Banks also routinely give data in quarterly results about their Common Equity Tier 1 ratios – a standard international measure of a bank’s capital “buffer.” SVB Financial Group’s ratio was 12.09 per cent at the end of December last year.