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.
Financial advisors within the bank’s wealth management unit were told that the company will be split into four pieces to be sold off separately, including the commercial bank, investment bank, wealth business and SVB Capital, its fund manager focused on venture capital investments, according to Patrick Dwyer, managing director at NewEdge Wealth and former managing director at SVB.
Advisors haven’t been told who specifically is bidding on the wealth business, but private equity firms are looking to bid on all the components of SVB. They’ve been told that a buyer will be lined up in the next two days.
“The advisors there are interviewing and then also waiting to find out who is the acquirer,” Dwyer said.
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 Dwyer says most of the old Boston Private business is custodied at Fidelity; the old KLS Professional Advisors Group, an RIA acquired by Boston Private in 2004, custodies some of its assets with Schwab.
“The good news for the advisors is that they’re platformed on Fidelity,” he said. “The level of worry is a lot lower when you’re on arguably the safest platform in the world—which is custody at Fidelity.”
But according to the filing, clients who use Fidelity as the custodian don't have their idle cash swept into a Fidelity fund; instead, it goes into a depository account at SVB that, according to the firm, pays higher interest.
Silicon Valley Bank collapsed last week after a significant number of tech startups and venture capital-backed 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.
SVB Private is the group's smallest unit, accounting for just 8% of SVB’s 2022 revenue, according to CFRA. With $17 billion in assets and over 50 advisors, 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.
They serve just over 3,000 individual clients, 2,000 of which are high-net-worth, and about 140 institutions.
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.”
Dwyer said the wealth unit would be an attractive acquisition from a geographical standpoint, with the bulk of the business in Boston, New York and Florida.
“I think it’s reasonably attractive to an acquirer, most importantly because it’s definitely going to sell, so if you’re a buyer, this is something that’s going to trade. It’s worth spending some time bidding on,” he said.
“One of the benefits of being an RIA during this period of time, certainly for NewEdge Wealth, is we have the good fortune of having first-class custodians like Goldman and Fidelity, and our clients felt very comfortable through this period of time because we were custodied at safe places.”
Daniel Bryant, operating partner at private equity firm Vistria Group and the former CEO of Sheridan Road Financial, said SVB carved out a niche in venture capital lending, an area that is taboo for most banks. He says it can be risky for advisors to be at a bank that focuses on a particular sector, especially those that are cyclical.
“This is It’s a Wonderful Life, a classic representation of that movie. It can happen really fast, and I think that when you are very focused on one particular ecosystem, which in this case it’s largely the Bay Area entrepreneurs, venture-backed, where you are funding losses as far as the eye can see," he said.
“I think having a nicely grounded, diversified large banking institution is the way to go.”
Andrew Graham, founder, managing partner and portfolio manager with Jackson Square Capital, an RIA in the Bay Area, says headline risk is one of the big challenges for advisors working at a bank.
“I think the headline risk and to no fault of their own, the advisors at Silicon Valley Bank are having to deal with this right now," Graham said. “It’s difficult when there’s something going on that’s not your fault.”
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 they saw the day after the sale was announced.
