Silicon Valley Bank is back, after collapse and acquisition – The Washington Post

SAN FRANCISCO — Advertisements loom over commuters and tourists, peppered with colorful brands that many here in the tech capital thought were companies consigned to the dustbin of history.

A year after Silicon Valley Bank suffered the third-largest banking failure in U.S. history, the startup and technology-focused bank wants you to know it’s back. The company is under new management and is now owned by North Carolina-based First Citizens Bank, which pulled its deposits and branches out of bankruptcy weeks after SVB collapsed in March 2023. It was purchased.

The bank lost dozens of customers last year as many desperately withdrew their money in chaotic days in a bank run that shocked the tech industry and prompted a government bailout. Hundreds of employees were laid off, while others took their customers to rival banks. Since then, the remaining bankers have been trying to rebuild trust and send the message that they still exist.

SVB President Marc Cadieux said Thursday at the Newcomer Banking Summit in San Francisco: “I spent a lot of time last year correcting the misconception that SVB has disappeared, that SVB has left a vacuum.” ” he said. “The truth is, we’ve never been apart.”

About 81% of the bank’s pre-collapse customers still have accounts with SVB, Cadieux said. Thousands of people who left have returned, he said. He added that relationships remain at the core of the bank’s operations and that he wants to continue to focus on accommodating start-ups, even in their early stages.

“We’re still doing the same thing that made us successful before,” he said.

Not everyone is convinced.

“I don’t know anyone who has all their money there,” says Antoine Nivard, co-founder and general partner of Blank Ventures, a venture capital fund that invests in startups. “Everyone has been burned once, whether it’s a startup or a venture fund. No one wants to get burned twice.”

Prior to installation, SVB had approximately $119 billion in customer deposits. according to to the FDIC. First Citizens said in its fourth quarter earnings report that at the end of 2023, that amount was just $38.5 billion. Some of that is due to the economic downturn across Silicon Valley, where rising interest rates and slowing software spending by big tech companies have made it difficult for startups to raise capital. But after SVB’s collapse, other banks moved in and took on many of its former customers, including startups, big technology companies, venture capital funds and individuals working in the technology industry.

Cadieux acknowledges that the days of thousands of technology executives and their companies being their personal bankers are over. “Everyone has two banks now,” he said.

Before the crash, Silicon Valley banks dominated the technology industry. The bank’s pleasant blue and white logo was visible throughout the technology conference. We have lent money to both venture capitalists who are investing in startups and the startups they are investing in. They went to SVB because they needed a mortgage. We also built business banking for Napa Valley wine producers, giving our technology clients access to California’s best wines and exclusive vineyard parties.

“It’s like going back to a different era of banking,” said Peter Hebert, co-founder and managing partner of venture firm Lux Capital and a former Lehman Brothers analyst. “People would virtually look you in the eye and say you deserve credit. That was the old-fashioned approach.”

Start-up companies with no revenue or profits can receive financing simply by receiving investment from a trust venture capitalist. “We were taking on underwriting. They ask, ‘Do you trust this company?’ And if we said yes, that was enough,” Hebert said. “That’s not the way it is done anymore.”

Start-ups and venture capitalists are now shopping around for the best bank, rather than automatically going to SVB, Nivard said. “I think it’s potentially better for the industry to end up with four or five very competitive banks,” he said. “I don’t think banking is for venture businesses.” [investing] It’s going to disappear. ”

SVB spent 40 years building its business in Silicon Valley. It fell apart within a day. In 2020 and 2021, the technology industry boomed due to low interest rates and consumer demand for internet entertainment, work-from-home tools, and new laptops. Investors poured money into startups and stashed most of that money in SVB. Banks took those deposits and invested them in long-term assets that paid more interest.

But as the world emerged from pandemic lockdowns and interest rates rose, the tech industry fell into recession, laying off tens of thousands of workers and pulling out new investment. As rising interest rates hurt SVB’s investments, the loss-making start-up withdrew its savings from banks.

On March 8, 2023, the bank announced that it was raising new cash by selling shares at a significant loss. Concerns that had been brewing in the financial world about bank investments exploded into a close-knit community of tech investors and founders. Blue-chip venture firms told their portfolio companies to withdraw from SVB, and the news spread through group chats and Twitter. Founders of companies that were banking exclusively with SVB moved millions of dollars of company funds into their personal bank accounts. By the end of March 9, $42 billion had been withdrawn from banks.

“This was like the banking equivalent of the U.S. withdrawal from Afghanistan,” Ebert said. “It was absolutely terrifying.”

The SVB collapsed the next morning and the federal government took over.

This run has spurred deep soul-searching among the tech elite, and despite years of building relationships and creating wine clubs, they now have no choice but to call their own. I realized that I had gutted the bank I had been using. Politicians in Washington are skeptical about bailing out startups that lost money in bank failures, saying why taxpayers would bail out a company that many in the country see as a bunch of rich, arrogant technologists. I was wondering if it was necessary.

Mr. Hébert was among those lobbying in the days after the failed bailout, arguing that if the government did not intervene to guarantee deposits, concerns could spread and cause other local banks to fail. The fact that the bank is located in traditionally liberal Silicon Valley didn’t sit well with Republican politicians, he said.

“Some of them specifically said, ‘Why should I care?’ It doesn’t matter to my constituents,” Ebert said.

Lawrence Toshi, managing partner and founder of venture capital firm WestCap and chief financial officer of private equity giant Blackstone during the financial crisis, said whether the government would guarantee deposits lost in banks. He said the fact that it took three days to make a decision made the crisis even worse. 2008 financial crisis.

“That was the time when we told everyone in business in the United States that their deposits were not safe,” Toshi said, referring to the weekend after SVB’s collapse. Two companies with significant exposure to cryptocurrencies, Silvergate Bank and Signature Bank, collapsed soon after. A month later, another California bank, First Republic, also filed for bankruptcy. However, the crisis did not spread widely throughout the economy.

Nivard said the lessons are valuable in allowing tech startups and venture capitalists who have never thought about banking before to spread their deposits across different banks and move them quickly as needed. He said he learned. Companies are also emerging to help other startups manage and distribute their funds to different banks.

Gone are the days when Silicon Valley banks were the “800-pound gorilla” of the technology industry, he said. Despite all the billboards and subway ads, some people don’t return to SVB.

“The first week after they came back, I withdrew all my money,” said Biju Ashokan, CEO of Radius, a technology platform for real estate investors. He currently works for another bank and has no intention of returning to SVB. “I don’t think there will be any new start-up banks.”

Michael J. Coren contributed to this report.