Only a small subset of banks would fit the bill to execute a buyout of all the assets from Santa Clara, Calif.-based Silicon Valley Bank, the failed subsidiary of SVB Financial Group, industry sources said.
Many different bank names have been thrown in and out of the mix of potential buyers of Silicon Valley Bank in media reports since it failed March 10. However, given Silicon Valley Bank's size of $209.03 billion in assets at Dec. 31, 2022, the universe of buyers is limited.
"There's a relatively small universe of institutions that could take it over, and I think there's probably an even smaller subset of those institutions that would want to take it over," Joseph Silvia, a member at Dickinson Wright PLLC who advises financial institutions on M&A, regulation and other topics, said in an interview. "It's a heavy lift and probably a difficult transaction to get done, but if it can be done with the right partner, then I think it does offer a lot more clarity and a cleaner transaction for everyone involved" compared with selling it in pieces.
The Federal Deposit Insurance Corp. recently engaged Piper Sandler Cos. to relaunch the auction of Silicon Valley Bank after the FDIC failed to sell the bank in an auction last weekend.
Looking for buyers
As time ticks, regulators are looking to strike a deal sooner rather than later, and questions are swirling about who will potentially take on the failed bank. Despite regulators' recent scrutiny of large bank deals, industry experts believe they are open to all bank buyers.
"At this point, I kind of feel like all bets are off, and they'd rather find a home for it somewhere, even if it's making a big bank bigger," Gary Tenner, managing director and senior research analyst at D.A. Davidson Co., said in an interview.
Silicon Valley Bank's size precludes many would-be buyers, such as Truist Financial Corp. or PNC Financial Services Group Inc., Hernan Hernandez, director of investment banking capital markets for financial institutions at Credit Suisse and a former FDIC examiner, said at a webinar hosted by Travillian on March 14.
A cap on holding more than 10% of the nation's deposits will likely keep the largest banks from the negotiating table.
"I don't see it as likely that the regulators would waive the 10% deposit cap" to allow JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. or Bank of America Corp. to buy Silicon Valley Bank, Silvia said.
Canadian banks would be "great buyers," but the speed at which the FDIC hopes to get the deal done will possibly hinder them because it "takes time" to get the capital for such a large purchase into the U.S., Hernandez said.
"Probably given the speed and how fast it needs to be sold, it'll probably go to one of the money center banks," Hernandez said.
If Silicon Valley Bank were selling under more normal circumstances, Canadian Imperial Bank of Commerce, Bank of Montreal, The Toronto-Dominion Bank and Truist would have been possible buyers, according to Christopher Marinac, director of research at Janney Montgomery Scott.
No matter who the buyer ends up being, there will be attention on whether the deal is positive for the economy given "regulatory sensibilities about overconcentration," said Clifford Stanford, partner at Alston & Bird LLP.
Buyers not put off by deposit base
A run on the bank in which customers pulled $42 billion in deposits March 9 after the company disclosed capital raise plans led to the ultimate closure of Silicon Valley Bank on March 10. But the potentially volatile nature of the bank's venture capital-focused, uninsured-heavy deposit base is unlikely to scare off buyers, experts said.
Especially if the buyer is a larger bank, it would not see as much of an impact as Silicon Valley ended up having from deposit outflows, D.A. Davidson's Tenner said.
The outflow of deposits "would certainly not be debilitating for a money center bank the way it ended up being for Silicon Valley Bank," Tenner said.
Marinac agreed that a potential buyer would likely not be wary of the deposit base.
"The better answer might be, 'Let's manage the risk and the concentration, and maybe let's make sure we do our interest rate deposit model better than Silicon Valley did,'" Marinac said in an interview. "I think it was more human nature that led to the deposit run and the ease of technology and the lack of deposit structure at Silicon Valley than it was some evil forces with the venture caps."