SVB Financial chooses to buy rather than build with Boston Private deal

SVB Financial Group will expand its private banking offerings and enter new geographies, including Florida, with its announced acquisition of Boston-based Boston Private Financial Holdings Inc.

Santa Clara, Calif.-based SVB Financial executives said the company will capture larger market share and add talent in private banking and wealth management, enter high-growth geographies, advance technology development by several years and potentially drive its loan-to-deposit ratio higher.

"We wanted to make a bigger, bolder move," CEO Gregory Becker said on a Jan. 4 conference call to discuss the deal. "So we had a choice, at the end of the day, was: Do we build, which is going to take a lot longer to play out, or do we actually look at buying something?"

Analysts were positive on the acquisition. Buying the capabilities Boston Private offers rather than building was the more efficient avenue to achieve growth and diversification, according to Keefe Bruyette & Woods analyst Christopher McGratty.

The expansion of its wealth management products offerings will allow the company to retain high net worth clients and add new clients through investments in early-stage companies, Janney Montgomery Scott analyst Timothy Coffey wrote.

"[SVB Financial] either did not have the products or was not as strong as [Boston Private] in wealth management banking. [They] remedied both issues with the acquisition, which we believe could result in greater retention of clients that transition from entrepreneurs to high net worth individuals," he wrote.

Once closed, the deal will increase SVB Financial's private banking assets under management by 12x, triple the bank's private bank loan portfolio and quintuple private bank revenue, according to CFO Daniel Beck.

Becker pointed to Boston Private's offerings such as tax planning, trust services, philanthropy and estate planning as attractive additions to SVB's platform that it otherwise would have had to build over time. Boston Private's "next-generation" digital platform, which enhances the customer experience and streamlines processes such as onboarding, would have taken several years for SVB Financial to build, Becker said.

"SVB's strategic vision is to be the most sought-after financial partner in the innovation economy," Becker said. "We believe Boston Private will bring us one step closer to this vision."

Becker also pointed to the geographic expansion that Boston Private will provide, highlighting Florida. "In the case of Florida, that's where wealth goes in many cases," he said. "And increasingly, you read about this in the headlines every day, more companies and executives are moving to Florida for a lot of different reasons."

Starting with an established brand rather than building from the ground up gives them an advantage in attracting more talent, Becker said. The company will focus on integration and capitalizing on the talent the combined companies already have and then look to "selectively add" more talent.

The acquisition also provides an opportunity for SVB Financial to add lending capabilities in various industries such as nonprofit, multifamily, professional services and "selectively some" CRE, Becker said. "I was surprised by some interesting things on the commercial banking side that we are going to take a look at, some we're going to put into our business and some we want to learn more about," he said.

Boston Private's four largest loan categories are residential mortgage, multifamily, C&I and CRE, according to Chief Credit Officer Marc Cadieux. About 11% of Boston Private's loans are in the retail and hospitality industries. While there was strong pre-COVID-19 loan-to-value coverage for Boston Private's retail and hospitality loans, uncertainty still remains, Cadieux said.

"Having said that, we have done an extensive and thorough review of Boston Private's loan portfolio, policies and processes with a particular emphasis on the commercial loan portfolio. And we are confident that we have adequately assessed the risk," he said.

Analysts generally focused on the deal's ability to expand SVB Financial's offerings in private bank and wealth management. Wedbush analyst David Chiaverini wrote that the new additions will fill a "glaring hole" for SVB Financial.

"[SVB Financial] has proven itself to be a leading player in the innovation economy, has illustrated success of a somewhat similar 'bolt-on' acquisition of a specialty business via SVB Leerink, and we believe the larger platform will make it easier for SIVB to sell this service to existing commercial relationships," D.A. Davidson analyst Gary Tenner wrote in a note on the deal.