There may not be quick answers to the biggest questions
facing the wine industry after Silicon Valley Bank collapsed on Friday — including the future of the bank’s landmark wine industry report.
By Jeff Siegel
Last week’s abrupt closure of Silicon Valley Bank left many in the wine industry fumbling for financing and wondering where their money went. But over the weekend, President Biden announced that all SVB customers would have access to all their deposits by today (Monday, March 13). Beyond that reassurance, though, the future of the bank’s holdings remains in question. Already, Silicon Valley Bank UK Limited (which is a legally separate company to SVB in the U.S.) has been sold to HSBC, the largest bank in Europe.
Does a similar fate await SVB’s wine division? The Federal Deposit Insurance Corporation began entertaining bids for Silicon Valley Bank on Saturday evening, with all bids due by Sunday afternoon. According to SVB wine division head Rob McMillan, it’s possible the wine division will be spun off separately.
“We’ll have to wait and see what the book of business looked like,” says Merrill Reynolds Jr., referring to the trade term for the bank’s loan portfolio. Reynolds, a long-time Texas banker who also worked for the Federal Reserve, is managing director of the Certified Community Bank Directors program at the SW Graduate School of Banking Foundation at SMU’s Cox School of Business in Dallas.
“Given the bank was tech-oriented, there’s a good chance that a fair share of the loans were overextended,” he says. “We’ll just have to keep an eye on it and see what happens over time.”
A colossal failure
Reynolds emphasizes that the SVB failure may turn out to be the second biggest in U.S. history, behind only the infamous Washington Mutual debacle during the 2008 financial crisis. “This was colossal,” he says, “and it’s going to be painful.”
Also worth noting, as regulators try to figure out what happened, is that SVB was well-known for its aggressive practices, and, as a state chartered bank, it didn’t have quite as strict regulations as a federally chartered bank. In fact, it faced similar — though not as serious — troubles in 1992, when the real estate bubble burst and it lost $2.2 million, and again in the 2008 crisis, when it got $235 million from the Treasury (though it did pay all that back).
The pain level for the wine industry will depend on how big a role wine lending played in the bank’s business; this was unclear over the weekend despite SVB’s prominence as a wine industry lender, says Reynolds.
That involvement – and any shock waves – will ultimately decide what happens to land values, as well as to grape and bulk prices. (If wineries are forced to sell land or grapes to raise money to meet loan obligations, prices for each could fall since the supply will be greater than the demand for either.)
Relief for customers
The FDIC’s goal will be to liquidate SVB’s assets for as much as possible and return the money to the insurance fund. Nothing else will matter to the FDIC, says Reynolds. So, in the near term:
- According to a press release, a newly created “bridge bank,” the FDIC-operated Deposit Insurance National Bank of Santa Clara, which will hold the deposits and assets of Silicon Valley Bank, beginning Monday.
- Over the weekend, the Treasury announced that it would “fully protect everyone who had money in” the failed bank, over and above the $250,000 federal insurance limit. This includes some of the biggest tech companies in the country, such as Netflix and Pinterest, as well as its wine industry customers. The run on the bank last week, says Reynolds, came from customers whose deposits exceeded the $250,000 limit, as they tried to withdraw money to get down to the insured threshold.
- It’s business as usual for those with loans. The only exceptions could be those who were very far behind on payments, as their notes could be called in.
- Layoffs are almost certain — first on the retail side, since the new bank won’t be taking deposits, and later on the lending side as the FDIC sells off assets (including office furniture, computers and the like).
SVB Report in question
Reynolds says he hopes the wine industry report finds a new home, calling it perhaps the best in the wine business. Rob McMillan, the report’s author and the head of the wine division, wrote on his blog (“Silicon Valley Bank: What Comes Next?”) on Saturday that the study’s future is problematic, given the cost of producing the report, the legal questions about who owns the data involved…and where he will be working next.
This story is rapidly changing. WIA will update information as more becomes known.
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”