SVB bulked up with 2 Mass. companies. Now they’re caught up in its unraveling
The great unwinding of Silicon Valley Bank’s ambitions has a special sting in Boston, where the failed bank’s parent had vacuumed up two local institutions in recent years, part of its bid to build an empire serving the tech sector.
On Friday, the bank’s parent, SVB Financial Group of Santa Clara, California, filed for Chapter 11 Bankruptcy protection, while it tries to sell off its parts. One of those parts is an investment banking group acquired in 2018 for $280 million — Leerink Partners, a Boston firm that specialized in deals with health care and life sciences companies, helping them raise money and sell stock to the public.
Now called SVB Securities, the group is not part of the bankruptcy, but it is up for sale. It’s still run by its founder, Jeff Leerink. And he is looking to lead a management buyout to take the firm independent again, according to an executive at the company who spoke on condition of anonymity because the talks are not public.
Ben Howe, chief executive of the Boston investment banking firm AGC Partners, says he wouldn’t be surprised to see that outcome.
“Jeff Leerink is a banking junkie. It is both his hobby and his work,” Howe said. “What I know of him — he’d be ecstatic to spin it out and keep it going.”
In a statement Friday, SVB Financial said it’s looking for “strategic alternatives" for the securities group and another unit, SVB Capital.
Silicon Valley Bank, which was shut down by regulators a week ago, is not affected by the bankruptcy filing. The bank is under the control of the Federal Deposit Insurance Corporation and is no longer owned by SVB Financial.
The $209 billion bank’s collapse was the second-largest in U.S. history. Its branches reopened on Monday, after federal regulators decided to make depositors whole — pledging to reimburse all their deposits instead of just the insured $250,000 per account.
But the failure has left the tech and venture capital community reeling, as SVB was the go-to bank for the sector, in Greater Boston and California. Business owners have been scrambling to shift money to other banks and ensure they can make payroll and pay their bills. And a broader sector of companies has been affected as well, including nonprofits and charter schools.
That’s because SVB in 2021 purchased another Boston institution: Boston Private Bank & Trust Co. That acquisition brought in even more well-heeled clients and business owners, as well as nonprofits, independent schools and affordable housing developers.
Regulators have been seeking a buyer for Silicon Valley Bank and the assets it acquired from Boston Private, but no deal has yet come to the fore. The bank has even been trying to get customers to stay on, perhaps to help make it more attractive for a potential buyer.
The SVB bankruptcy filing comes as the bank and its corporate parent are under investigation by federal and state authorities. Top executives also are under fire from lawmakers, including U.S. Sen. Elizabeth Warren, a Massachusetts Democrat, for successfully lobbying in 2018 to weaken oversight of banks of SVB's size. That was the same year SVB expanded into investment banking with its purchase of Leerink. The rollback pushed the threshold for tougher bank regulation nationally to those with $250 billion in assets, instead of $50 billion.
So far, the bank’s failure has not been linked to SVB’s other businesses. Rather, it’s been blamed on the bank investing in U.S. Treasury bonds that plunged in value as interest rates climbed over the past several months. The company had to sell some of the bonds to raise cash and took a big loss; customers concerned about SVB’s finances started a run on the bank, withdrawing billions of dollars over a couple of days, and leading regulators to take over.
Cornelius Hurley, a former bank regulator who teaches financial services law at Boston University’s School of Law, says the Federal Reserve should have seen the trouble coming at SVB.
“The fact is that you can just look at their balance sheet, and the amount that they were borrowing,” Hurley said, “and tell something is not right.”
Under then-President Donald Trump, he said, regulators have described bank oversight as “tailored,” or less stringent. That was a major step back from regulation in the Obama years, which had followed the 2008 financial crisis and a wave of bank failures.
Two other banks also failed last week, and a third, First Republic Bank, this week received an infusion of deposits from a group of the nation’s largest banks. The deal was meant to stop speculation that it too was vulnerable to a collapse.
In all these cases, the banks were receiving large infusions of cash from the Federal Home Loan Bank system, which should have been a clue to the trouble to come, Hurley said, adding, “It’s a mess.”