SVB's investment banking unit on the block

IFR 2475 - 18 Mar 2023 - 24 Mar 2023
7 min read
Americas, EMEA
Steve Slater, Robert Sherwood, Philip Scipio

SVB Financial Group is trying to keep its investment bank family together, despite the spectacular collapse of its retail subsidiary Silicon Valley Bank, and said it has had "significant interest" in the unit. The investment bank, which specialises in the hot areas of healthcare and technology, has made just over US$2bn in fees in the past decade and has been hiring and growing in recent years.

The Federal Deposit Insurance Corp seized control of California-based Silicon Valley Bank on March 10 as a run on its deposits threatened its solvency. But SVB Financial executives are still in control of SVB Securities, the investment bank subsidiary, and SVB Capital, the venture capital arm.

Bankers hired to explore strategic options for SVB Securities and SVB Capital are making headway towards outright sales.

SVB Financial Group, which filed for bankruptcy protection on Friday, has formed a restructuring committee and tapped Centerview Partners as an adviser. It has "fielded inbound calls from multiple suitors for both businesses and has sent non-disclosure agreements to interested parties", according to a source close to the process.

There was no word on how many NDAs are outstanding, or when a shortlist could be drawn up or winning bid chosen. But the advisers want to complete the process soon to limit an exodus of talent, the source said.

SVB Financial said SVB Securities is not included in the Chapter 11 filing and continues to operate as normal. It said the Chapter 11 process will help it evaluate "strategic alternatives" for SVB Securities and SVB Capital and the process "is already underway and has attracted significant interest".

A restructuring banker said Chapter 11 means SVB Financial could have a buyer who wants a clean acquisition that only a bankruptcy process can give.

Selling point

The main draw of SVB Securities is its focus on healthcare and technology, high-growth areas where most banks have been expanding in recent years. Despite the downturn in investment banking in the last year, both areas are likely to attract attention, according to bankers who admit interest in certain talent at SVB Securities.

The subsidiary has made significant hires in the last couple of years as it pushed deeper into tech, taking Jason Auerbach from UBS in 2021 as its global co-head of investment banking and global head of tech investment banking. A number of others followed him out of UBS including Nathan Laverriere a senior managing director of tech investment banking. Matt Lytle joined in 2021 from Goldman Sachs, where he was global co-head of internet investment banking.

SVB Securities said last month it had more than 70 technology investment banking professionals. It has hired at least 10 senior people since the start of 2022 in investment banking, research and trading, including Scott Silverglate, who joined last month from Goldman, where he was global head of industrial software. Other hires last year came from JP Morgan, Barclays, Morgan Stanley, UBS and Credit Suisse.

That came at a cost, however. SVB Securities reported a US$95m loss for 2022, compared with a US$48m profit in 2021 and a US$119m profit in 2020, which it said was driven by an increase in compensation costs due to hiring to support its expansion. The unit's income was US$508m in 2022, down from US$609m in 2021, according to its most recent 10K filing.

Sources said the entrepreneurial culture of the bank is keeping the group together, at least for now, but the potential for a big payout from an acquisition will disappear once talent begins to take other jobs. Some bankers may still be bound to SVB under a previous retention agreement.

The FDIC, meanwhile, has hired Piper Sandler to find a buyer for Silicon Valley Bank. PNC Bank was kicking the tyres, but pulled out at the last minute unable to wrangle safeguards from the FDIC, sources said.

HSBC stepped in on Monday to buy SVB’s UK arm in a fire sale brokered by UK regulators. HSBC CEO Noel Quinn said the acquisition for a symbolic £1 made “excellent strategic sense” and boosted HSBC's ability to serve innovative and fast-growing companies, including in the technology and life science sectors.

The prize

SVB Securities focuses on capital raising, M&A advisory, structured finance, equity research and sales and trading.

It brought in US$262m in fees from equity and debt underwriting, M&A advisory and syndicated loans in 2022, according to Refinitiv data. Its peak years for fees were 2020 and 2021, when it brought in US$372m and US$365m, respectively. It has made US$55m in fees so far this year.

SVB's investment banking fees since the start of 2013 totalled US$2.06bn, and 88% of that came from healthcare industry clients, the Refinitiv data show. Some US$1.63bn of its fees came from equity capital markets activity, which includes IPOs and follow-on share sales. Another US$328m came from M&A advisory work, with US$98m coming from syndicated loans and just US$8m from bond underwriting, the data show.

The firm is not based in Silicon Valley, but Boston. It was formed when SVB Financial Group bought Boston-based healthcare and life sciences boutique Leerink Partners in January 2019. SVB paid US$280m for the business, plus US$60m in retention pay for staff over five years. SVB Securities bulked up in December 2021 with the purchase of MoffettNathanson, a New York-based sellside research firm known for its coverage of high-growth, disruptive companies in the telecoms, media and technology sectors. The unit changed its name from SVB Leerink in February 2022.

SVB Securities said on March 11 the collapse of SVB would not directly impact the broker-dealer’s business operations, which it said continue under CEO Jeff Leerink, who previously ran Leerink Partners. The company has not released an update since, and did not respond to a request for comment.

The firm said it has completed 1,160 transactions since 2019 that have raised more than US$230bn.

Refinitiv data show US$1.82bn of SVB's fees in the past decade came from the Americas. Another US$185m, or 9%, came from Europe.

Corrects name in 13th paragraph