Saturday, March 11, 2023

Silicon Valley Bank: What comes next?


For those who've read this blog before, you may notice the headline slide has changed from SVB on Wine, to Rob McMillan on Wine. I know I don't need to explain that change. 

This is a horrible message for me to have to write. I was asked to stay silent the past few days by SVB but now that the die is cast, I thought I should sit down and share what I know.

To start, my employer formerly known as Silicon Valley Bank, no longer exists. I'm still processing the whole thing as are most people associated with the bank. 

On Friday morning, clients, employees, bank suppliers and shareholders all awoke to the same news: SVB has been taken over by the FDIC. For everyone involved, there is a range of emotions to process; fear, anxiety, anger and so much more. I'm personally cycling through all of the same emotions.

In the space of 48 hours, SVB went from being a very viable banking organization with sound metrics by all regulatory measures, to being out of business. Investors lost billions, clients had their deposit accounts frozen, and the FDIC halted all banking transactions to stop the panic-driven loss of cash. 

How could that have happened? I never thought I'd see an old-fashioned run on the bank as portrayed in "It's a Wonderful Life," let alone find me in the middle of a collapse, but that's the reality. The situation didn't turn out like the movie. 

The wine industry had nothing to do with this. This event was an unnecessary fear-based collapse that the Venture Capital industry participated in, and is having second thoughts about. Six hundred thirty six VCs are trying to make their voices heard on this disturbing collapse - albeit a little late.

This incident is going to go down in infamy with Continental Illinois. That was the last bank I recall that failed over a run on deposits. While the Washington Mutual failure is the largest ever bank failure, that bank collapsed over loan problems. That is the normal path to a bank failure and you typically see the signs of that very early. Those problems didn't exist at SVB. The loan portfolio was performing well. Actually, as far as I could tell, the whole business was doing well. Today, in the blink of an eye this is the second-largest bank failure in the history of the US. It's hard to fathom. 


I've taken countless calls from clients who want more information, want to better know what happened, or just want to talk to me. Most it seems want to know how I'm doing too, and I sincerely appreciate the good wishes and prayers. Some though have been irritated or angry, and I completely understand. That's OK. This isn't fair. The frustration is justified.

For the moment, we are told by the press release from the FDIC that banking activities will resume no later than Monday, March 13, including on-line banking and other services. Opening is a start, but that doesn't begin to solve client issues with banking. 

[Monday Update: The bank is open, processing loan advances, and fully operational, albeit a little slower than clients expect. The depositors now have unlimited insurance from the US Government. So in a somewhat ironic turn, SVB now is the safest bank for deposits in the US

The Industry

Many have asked me about the reports that I write, particularly the State of the Industry, but also all the benchmarking data I've been able to provide for the past 20 years for free. I've received many calls and emails from people telling me how they depend on the information to feel informed and make decisions in their business. Numerous universities around the world use this information too, and some have asked me if that is going to continue. 

Unless the Wine Division is working under a different brand in the next week or so, I can say with a fair degree of certainty that I won't be able to produce Direct to Consumer benchmarking information this year. That planning was already well underway with the survey release planned for the end of this month. 

The next area of information I've used is the bank's database of winery financial statements we call Peer Group Analysis (PGA). That information doesn't exist anywhere else. I'm not sure what will happen to that database. If the bank has a buyer, the platform will go to that buyer to decide what to do, but the likelihood is that information will be lost sadly.

The State of the Industry Report is of course up in the air as well. I don't traditionally start until October so there is a little more time there. Many people want to see that continue, but I'll have to see how things play out. While SVB has done these reports gratis, there is a significant cost to produce them and logistics would have to be covered - analysis, writing, formatting, design. There is a lot that goes into the production of the report.

[Monday Update: The outpouring of support for the work we do on behalf of the wine industry has been pretty surprising to me; not so much that people appreciate what we do, but the literally hundreds of messages I've received on the topic. 

There are any number of solutions starting to crystalize, from a consortium of the industry providing funding for this activity, starting a non-profit, and some stand-alone companies who want to take on this work under their brand. Nothing can be decided at this point until after we get through the FDIC sales process. But the outpouring of support for the effort is going to be helpful in discussions with an acquirer when we discuss continuing these efforts.]

The Employees

The employees were told Friday night March 10th by the FDIC that they would be offered jobs at 1.5 times their previous base salary for 45 days. The implied hope is the bank will reopen under the banner of a new organization. I'm sure those discussions are underway, otherwise, there wouldn't be much need to try and keep all of the staff, but there are no guarantees there. I trust that the bank will indeed open under the FDIC ownership on Monday though.

[Monday Update: The FDIC has confirmed we are being paid, and have our same benefits. There is no news about the Bank's sale. They have also removed the temporary employment status messaged earlier at 45 days. That's a small victory.] 

This bank collapse obviously impacts all the employees who in most cases were shareholders. Some had their life savings wiped out, and now are dealing with a threat to their day-to-day living. But as we've each been processing our own grief, everyone in the Wine Division is functioning professionally and trying and take care of our clients. We don't have all of our tools available and not having complete information is a huge frustration for everyone. 

What comes next?

The culture here at Silicon Valley Bank was amazing and it's a real loss for everyone. I've never been around such a truly positive and creative group of men and women. We were able to do things other banks couldn't dream of, and focus on finding ways to help our clients and the industry evolve and succeed, while quietly giving back hundreds of millions for causes important to us like farmworker housing for instance.

If we don't find a bank buyer in short order, each employee is going to have choices to make about what comes next. Should that happen, I can say with confidence that every employee in the Wine Division of the bank is remarkable and will be a great hire for any banking institution. Where will everyone land? Some will stay in the banking business and take on different roles or industries. Some will find spots in different wine banks that will no doubt be anxious to have SVB clients.

[Monday Update: We've been listening to parties interested in buying the full Wine Division. Thus far there are 7 parties, three of which are banks who have reached out. We have no authority to act in these discussions, but we are listening, talking, and directing them to the FDIC.)

What am I going to do? I really don't know yet. I've been listening to people who are coming up with interesting options for the Division, and that's for now my focus. But, I have to listen under the circumstances. I'm going to take a little time to see if I can make a decision that will be a benefit to the industry and other of my colleagues first. If we end up being sold to a suboptimal buyer and something does pop up that benefits the industry, our employees, and our clients, that's where you'll find me next.

In the meantime, wish us all luck. Not knowing if the bank's URL will remain up, ( if anyone wants to DM me for anything, the way to always find me is on Linkedin.