SVB's Major Investment in Distressed Private Bank Fails at Auction

Boston Private was having difficulty expanding during one of the most prosperous eras in history.

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A commercial bank that served New England's small companies and homebuyers made a major push into capital management in the middle of the 2010s.

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It had a significant victory in 2014 when it spent $60 million to acquire Banyan Partners, a reputable adviser with $4.3 billion in client assets; nevertheless, the founder left the company less than two years later. Another multibillion dollar team had partners who quickly sold their remaining stock and bought it back.

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In the meantime, Silicon Valley Bank's wealthy tech clientele were outgrowing the bank's services because they needed more help creating estate planning and establishing charitable foundations.

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Days into 2021, SVB announced that as part of its "goal to be the top financial collaborator for the innovation economy," it will pay $900 million to buy Boston Private.

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Some business experts found the price to be excessive, with the total cost projected to reach $1 billion when accounting for the expenditures involved in fusing the two dispersed companies.

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SVB and Boston Private had not yet integrated their operations completely or even unified their retail outlets when SVB folded this month.

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As organizations consider whether to bid for SVB's private bank unit in an FDIC auction, the merger is once again in the news. In order to streamline the process, the regulator has allowed parties to submit separate bids for Silicon Valley Bridge Bank NA as well as the wealth manager. Bids are due on Wednesday.

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SVB's ambitious attempt to enter the cutthroat world of handling money for the extremely wealthy comes to a depressing end. It placed a wager on a bank that was in upheaval and had problems before the collapse of its parent company.

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SVB didn't reply when contacted for comment.

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Cultural Conflict

With Boston Private's acquisition of Banyan, officials gave Peter Raimondi, the firm's founder, the responsibility of leveraging the bank's current wealth assets to create a wealth advising behemoth.

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The effort demanded a mental shift.

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According to Raimondi, "we operate underneath the fiduciary duty — customers matter" as registered financial advisers. "Bank earnings are important. Objects have value. It was my responsibility to change both the culture and the way people think.

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He left after a year and a half. After his non-compete clause expired, Raimondi established Dakota Wealth Management, and he claimed that eight of his former Boston Private coworkers had joined him.

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According to him, Boston Private structured its wealth management services to make them more scalable. Despite a global wealth increase, the bank shed another assist organisations, leaving a patchwork of teams in charge of a smaller pool of assets.

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"The bank culture prevailed," claimed Raimondi.

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SVB's Search

However, SVB's management was instructed to look for a financial institution to purchase as the company's operations grew rapidly on the West Coast. The objective was to keep clients on premises for inquiries ranging form trusts to the advantages of purchasing versus renting private aircraft.

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They chose Boston Private as well as its $16 billion in assets, making an offer of $900 million in January 2021, which represented a 30% premium over the stock's then-current trading price. In contrast, two years prior, Goldman Sachs Group Inc. had paid $750 million to acquire United Capital, an RIA that managed $25 billion.

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But, Boston Private also had holdings in commercial banking, and the offer infuriated HoldCo Asset Management, the hedge fund that was the company's largest stakeholder. Based on the book value multiple, the company described it as "grossly too low" and charged the bank's board and executives with poor management and pushing for a sale out of self-interest.

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In an effort to get other shareholders to reject the sale, the hedge fund organized a campaign. The company claimed in a presentation from March 2021 that SVB's high valuation had unfairly inflated the value of their cash-and-stock offer.

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According to the fund's managers, "SVB has unfairly benefited from its ties to the tech sector, a sector that excelled during the epidemic but faces severe valuation hurdles at the moment."

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The sale was approved by the shareholders of Boston Private, and it became effective on July 1, 2021.

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Expenses are in doubt

The acquisition cost SVB stockholders more than first apparent. It agreed to pay an additional $200 million to merge the two companies, which represented a merger cost that was roughly three times greater than the median of comparable deals when expressed as a percentage of the total deal.

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During the pandemic, SVB's dispersed workforce and rapid development caused uncertainty among staff members, according to Patrick Dwyer, a money manager for Boston Private prior to being acquired by SVB. After the transaction, he left the business and is currently a chief executive at NewEdge Wealth.

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Private banking at SVB was less advanced than other divisions of the company. It mainly concentrated on providing consumers with mortgages, frequently with flexible terms, and also performed some capital call loans. Private jet acquisition financing was an industry that failed to take off.

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In the end, they were a local bank that happened to be in the right location at the right time, according to Dwyer. As the company grew bigger and more complex, SVB "expanded like crazy and certainly needed a more complex leadership team."

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Shortly after the sale, the Boston Private officials who helped organize the purchase quit. The assets of SVB Private decreased by more than $2 billion in the year ending on December 31, according to the company's fourth-quarter financial results.

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According to three people aware with the departure who requested that they not be identified because they weren't permitted to talk about it, some of its advisers have already departed to join a rival.

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The auction for SVB Private is taking place at a time when purchasers are more picky than they were six months ago. According to DeVoe & Co., the total transactions in the RIA business decreased 20% in the last three months of 2022, marking the first quarterly year-over-year dip in more than four years.

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According to Trade Algo, First Citizens BancShares Inc. is still seeking to find a buyer for the entirety of SVB and may take part in the auctions.

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The recent spate of bank collapses may have wealthy people being more selective about where they keep their money. SVB Private is a relatively new player that was pieced together through wealth-manager acquisitions, or "roll-ups," as the business puts them.

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"Who wins if the culture is an amalgamation of enterprises coming together?

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", declared Kevin Neal, the man behind client advocacy business Moenio. Do I want my client to be present during that? ”