A full sale of Silicon Valley Bank has yet to be completed but bargain shoppers are already circling.
Private-equity firms Blackstone,
Global Management,
and
are looking to buy pieces of Silicon Valley Bank’s (ticker: SIVB) $75 billion loan portfolio, according to sources familiar with the matter. While one source stressed that the process is still in its early stages, it noted that this is a “potential opportunity” to get the assets at a “good value.”
Blackstone, Apollo, KKR, and Carlyle Group declined to comment. Bloomberg earlier reported private equity’s interest in Silicon Valley Bank’s loan book.
The interest in the fallen bank’s loan book isn’t entirely surprising even though efforts to find a buyer for Silicon Valley Bank over the weekend failed. While most people will generally associate a bank’s collapse with poor lending decisions, Silicon Valley Bank’s loan book wasn’t what was responsible for the bank’s demise. Instead, Silicon Valley Bank collapsed because its portfolio wasn’t positioned to deal with a flood of depositor withdraws amid rapidly rising interest rates, which forced the bank to sell its bondholdings at a loss to meet depositor demands.
Even while downgrading the credit of Silicon Valley Bank and its parent company, SVB Financial, last week, Moody’s acknowledged SVB’s “strong franchise” in banking for start-ups as well as its underwriting.
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“It has a long-established record in the sector which supports its expertise, conservative underwriting, and better than peer asset quality performance,” Moody’s wrote.
Others on Wall Street agree.
“The loan book has a variety of assets underneath it, many of which are probably solid,” Nicholas Colas, co-founder of DataTrek Research, told Barron’s. “Unemployment is still low, wage growth is OK, gas prices have come down, so for all the fears the market may have about a recession we have not yet really hit a tipping point.”
Meanwhile, finding an outright buyer so far has proved to be more challenging. A bidding round for the bank closed Sunday afternoon without a buyer emerging. While the bank’s loans may be sound, other banks may be hesitant about acquiring a troubled institution. During the financial crisis of 2008-09, big banks such as
Chase and Bank of America were hampered by their rescues of fallen companies like Bear Stearns,
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and Countrywide Financial.
In a 2015 shareholder letter, JPMorgan chief executive Jamie Dimon expressed regret about the bank’s acquisitions of Bear Stearns and Washington Mutual as the cost litigation stemming from the companies approached $19 billion.
“We didn’t anticipate that we would have to pay the penalties we ultimately were required to pay,” Dimon wrote at the time.
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Without a sale of the bank, selling off the loan book quickly is likely a priority for the Federal Deposit Insurance Corporation, Colas said.
That is the type of dynamic that can get private-equity investors excited as they see a chance to get a book of performing assets at attractive terms. And with Silicon Valley Bank’s clients including companies like Etsy, Roblox, and Roku, private-equity firms can also foster relationships with established and emerging growth companies.
“A PE shop that can show up with a big check and a fair price can put a lot of capital to work quickly. A lot of these firms still have a lot of dry powder, and this is one way to quickly get it earning a return,” Colas said.
Write to Carleton English at carleton.english@dowjones.com
