Lessons Learned From a Bank Run (Peter Hébert & Laurence Tosi) + SVB's Marc Cadieux

[00:00:00] Hey, it's Eric Newcomer. Welcome to the Newcomer Podcast. We're fresh off our banking summit and we've got two great talks for you in this double header episode. First up, we've got Lawrence, Tosi, and Peter Abert. Tosi is the former CFO of Blackstone in Airbnb, and now the founder of the Investment firm Westcap Group, and Peter Abert is the co-founder of Luxe, and way back in the day he was an analyst at Lehman Brothers. Both are very financially minded. Tech investors

[00:00:30] and investors start ups and wanted to bring them on the pod to tell the real story of the fall of SVB and how it's impacting Silicon Valley. So give that a listen. Second, we have Mark Cadier, the president of Silicon Valley Bank, which has been acquired by first citizens bank, Mark takes stock one year after the SVB crisis. The bank faces an onslaught of competition from JP Morgan, HSBC, Steeple, Mercury, and many others.

[00:00:59] But SVB has always been a cornerstone of how Silicon Valley does business and had a great conversation with Mark Cadier. Give them both a listen.

[00:01:10] Lawrence, Tosi, co-founder of Westcap Group, former CFO of Blackstone in Airbnb, and Peter Abert, co-founder of Luxe. Both were in the thick of everything that happened. Tosi and I did a podcast as it was all unfolding. We can take stock of that.

[00:01:26] So yeah, thanks for joining us. Thank you for having us.

[00:01:29] Yeah, when did the crisis start for you both?

[00:01:32] Well, the crisis started in a way that I didn't necessarily appreciate, but I had a friend, as I was just telling LT before this, that it was probably November or December of 22, who came up to

[00:01:46] with his company from New York. And he's, you know, a hedge fund investor long focused on the banking sector. And he said to me like what do you think about SVB?

[00:01:54] And I said, what do you mean? What do I think about SVB? He's like aren't you concerned? And I said about what? About the loan book?

[00:02:01] About, you know, it's like venture, it goes ups and downs cycles. He's like no, about their duration issue.

[00:02:07] And I said, what the hell are you talking about? Don't you understand how this works? People have stayed with SVB for decades.

[00:02:12] This is how it will be forever. And I kind of brushed it off. But it had been issue that we had been hearing about, you know, going back to that November, December, period of time, but also in the beginning of last year, more so in New York among kind of public market investors who had identified this issue and talked about it.

[00:02:32] And when things started to accelerate, I had already been aware of it. So I had some background. I just never thought that that would be something that to the earlier panel talking about kind of bank runs that would actually impact human psychology, which I see is obviously an accelerant here.

[00:02:48] So I'll give a little dated stuff. So in 2000, I was at Merrill Lynch eventually chief operating officer banking and trading. So I saw what that looked like. That wasn't much fun. 2008 was at Blackstone as one of the managing partners.

[00:03:03] And so we had started to tell our portfolio companies about a year before that things were going to get dark quickly.

[00:03:11] I had never I thought the government frankly was too late and raising rates. And I thought they moved too fast. And inflation was going to drag them to a level that we thought. And I'd seen now two times before regional banking stress.

[00:03:23] So one of the central tenants of what we were telling our portfolio companies even a year before was we need to be really careful with where your cash was.

[00:03:31] We need to be centralize operations in our portfolio. And so and we know we knew it and we'd seen it. I'm looking at Jeff, my partner Jeff Malin who's the the treasure of Airbnb when we went through the pandemic.

[00:03:43] So we were a group that was very accustomed to shocks to the system. And we very quickly started working on strategies and we could see it just was going to happen. When you're going to have that type of rate shock, it's going to hit the regional banks and it's going to take some time.

[00:03:57] We started getting worried. And just so we say it out like the core problem with SVB like let's articulate it like it was sort of two things happening once them being sort of dependent on Silicon Valley, which was booming in a low interest rate environment and then holding on to financial products that suffered as interest rates came up.

[00:04:17] Is that how you would probably I think that's fair we actually that's exactly right and it was it was concentration risk against a certain sector. And apparently in the end it looked like they were overexposed to long term rates.

[00:04:29] We were very worried about that. So we only had one portfolio company that exposure to SVB at the time everything happened. And frankly, that was by design.

[00:04:37] I was to say something that's slightly different, which is you know and LT will surely correct me if I'm wrong here. But in many ways like you think about the pandemic money surged into the venture capital asset class people like us and others put it and farmed it out there to companies.

[00:04:53] And that would find its way into some deposit and generally more often than not SVB and they had this huge influx of cash. And then they had to figure out what to do with it and they put it into highly interest rate sensitive government securities it wasn't very seemingly very safe.

[00:05:10] That was the big problem was lending the US government money or at least in the duration of which they were lending.

[00:05:16] And then I'd say another thing that complicated matters not just the concentration risk of highly gossip oriented hyper connected individuals and technology venture capital world and Silicon Valley.

[00:05:28] But also what has changed certainly from when he was at Blackstone and I started my career at Lehman Brothers looking at 2008 is social media free flowing information transmitted at the speed of light.

[00:05:40] Twitter banking apps that people can immediately withdraw so that it wasn't like going down to Jimmy Stewart's bank and having to wait in line.

[00:05:49] And all those things if you think about what causes sheer panic in a very abbreviated period of time will lead to that.

[00:05:56] It just takes stock of what's been reported and not you know like green oaks a very smart investor was clearly warning their people US V was warning their people seems like founders fund Peter teal was like directly communicating with people warnings then I think there was like some huge and recent portfolio company thread where everybody sharing notes and like it all just spirals out or like what's your how did this message get out so fast and I guess the real question that we'll never know the definitive answer.

[00:06:25] Was was it did SVB fail because of a bank run or because of their duration risk strategy.

[00:06:34] Well, there's a lot the lots unpack their air. I think she makes a good point particularly unprepared for the velocity of the change in movement of capital with the government that was the big surprise.

[00:06:45] So that we were talking a little bit about how they reacted so I think the the velocity of the change was something we'd never seen before because exactly as Steve just said he didn't have these things to do as neat.

[00:06:56] I was thinking.

[00:06:58] It's a good thing he was saying that's what it's not but but as Peter said like I think that things moved faster the government wasn't ready and the banks weren't ready and that is definitely a contributing factor.

[00:07:09] And you were an advise you were on like a venture advisory board SVB touch on like yeah what SVB is and was to the valley like pre crisis in many ways it harkened back to a different era of banking where it wasn't just relationship.

[00:07:26] But people would in effect you know look you in your eye and say you are worthy of credit right it was this old school approach almost beaver cleaver ask and that world has obviously changed and maybe it was belated and maybe that were accrued to the benefit of quote-unquote insiders of those with relationships.

[00:07:43] Today obviously more lending decisions are made algorithmically and I think probably there are a lot of people in this room that is exactly what they want to be doing I'm thinking it should be done.

[00:07:52] But we had a very cozy relationship or Silicon Valley did for decades and looks as well where there was trust on both sides it was underwriting the underwriters they would ask the question do you stand behind this company and if we said yes they'd say that's good enough for us.

[00:08:10] That's no longer in despite what most people say the way that things are done relationship still do matter you know the relative position of the equity capital investors behind the company does factor into lending decision.

[00:08:23] But it's no longer as simple as it was under that SVB constant.

[00:08:27] We'll dig in more to you know present day today but do you think venture capital firms betrayed Silicon Valley Bank.

[00:08:34] You know it's something that we talked about a lot at the time and even after and just thinking about this but the reality is like we were aware of all the issues

[00:08:44] and it wasn't lost in us but we also felt it's not like a placing myself on some you know moral high ground but we also felt if we communicated and said here's a risk it's the equivalent of yelling fire in the theater.

[00:08:59] So you were more on the stay I was you know when we can talk about the day and even the weekend after which I think is fascinating and very few people have actually talked about it in a public forum

[00:09:09] but I was of the perspective that if people held together held strong and I'll use like the Braveheart analogy you know it's like hold on then you could have resisted those market forces by the end of the day on Thursday that was lost like that that you had reached a point of no return.

[00:09:27] But I did believe if people were rather you know it's not and again I understand its risks if you're trying to you know manage risks reduce them you want your companies to have access to capital.

[00:09:37] You don't want to be the last one here. It's a pure like game theory it is absolute game theory you it's like yes but you know there was so much there was a time or felt like there was a good cabal or like the VCs could sort of collude when necessary to like protect something

[00:09:52] and the inability of the VCs to work together and say no we're not going to bail on Silicon Valley sort of in some ways speaks to how big it's become anyway LT.

[00:10:01] So there's two super unique factors in what happened one is Silicon Valley back was a huge presence in the valley I mean they touched every company there's not a company that they weren't calling on so they were very pervasive and it's unusual in any industry you have that kind of dominant market share.

[00:10:15] The second one is a lot of private companies are underdeveloped when it comes to risk and treasury. I mean I can remember when I got to Airbnb we had a billion dollars on the balance sheet it was sitting in the count of PayPal earning zero.

[00:10:25] That's not the antithesis of treasury and I looked at us like well we can definitely make money off of that so you had a lot of companies that weren't because when you're private you don't really have the need for a very sophisticated risk or treasury system because you're not supposed to be hoarding cash and earning money off it.

[00:10:41] Add that and then maybe the third factor is the VC community and the growth equity community is very very close very close because you have portfolio has been on how many companies you have paid.

[00:10:51] More than 275 probably that's 275 emails that go out very quickly so that kind of those little hub and spoke models of the VC companies can get out there quickly so those three factors were super unique and created something that this country had never seen before.

[00:11:07] And so the days when did you say okay fine get out or like when you I mean we talked you were helping at least one company move money out like what was like that like and how much was it sort of a relationship game work was you the right banker.

[00:11:21] So this SVB people won't want to hear this but we were stay we were away from them for about a year and the only company we had that had cash with them was a company we had signed a deal to invest in that hadn't actually closed with yet and we hadn't gotten to treasury.

[00:11:35] And so then we moved quickly obviously to move it you know there's there's differences between money market accounts and general deposits like that was one simple thing you could do all you didn't need to go running out of the bank you can just move in a money market deposit and that's fully it's not insured but it's not touchable no matter what happens you're not opposite the bank credit.

[00:11:52] So that's what we did we just moved quickly there were some other companies that we had relationships with came for advice and we spent I guess probably a week just making sure that everybody was set up and they were in a good spot and we were kind of teaching the strategies of how to limit the risk.

[00:12:04] But it came very very fast in the end.

[00:12:07] And so you know your on team hold when do you say we're not anymore?

[00:12:11] Yeah so we thought we we do think about risk management we take it seriously and we thought that we had done all the necessary things in advance to make sure that we were hedged.

[00:12:21] The reality is we had as kind of frontline banks SVB and first republic and then money center banks we had JP Morgan Morgan Stanley at that point time.

[00:12:32] And we thought that that was fairly diversified we have the ability to move accounts around we can talk about the correlation with first republic in SVB it's a whole nother topic but to your point on the third day I heard I guess it was the Wednesday night they kind of announced they were raising capital normally you announce that you're going to be in the next day.

[00:12:50] And then you know that you were going to raise the money from I can't remember the specifics right they had that call with VCs to reassure them and it came off well that was well there were a couple calls in prior weeks where people started to hear things we had again been hearing for months but people here.

[00:13:09] And I took a while to reach the west coast New York money had been like crossover funds have been pulling out in the weeks earlier we'd start to hear those kinds of signals.

[00:13:18] But then Thursday morning I remember the stock like gap 50% lower whatever it started moving and then people started looking at that and the CEO is remembered it's like I told you I think we have 275 active board companies they are not focused on treasury right they're trying to build rockets they're trying to build robots even their CFO you know hopefully now they have the

[00:13:38] gotten more sophisticated but this is just not something risk that they are pondering and so I remember I was at a meeting earlier in the morning came back to the office at 10 and we had kind of an all hands discussed this.

[00:13:49] And at that point time it was team hold and then it was like from that 10 o'clock period to call it 2 p.m. of course the markets close out here in 1 p.m.

[00:14:00] was and I realized this is probably inappropriate reference but it was like the banking equivalent of the US withdrawal from Afghanistan it was over that 3 hour period.

[00:14:10] Colorful yeah it was absolute sheer terror we started getting first emails and it was calls and then people are saying what should we do we just they people were wiring money because like they were asking for board approval to wire money at an account they were wiring money because they didn't have other credit or banking relationship.

[00:14:28] And the big risk was you know people are obligated to make payroll and if they can there is a lot of payroll that was like the I can't remember what we called it that was over the weekend people call me like maybe the Monday morning problem or whatever it was because around the 15th or whatever it was it would fund maybe the 13th and be paid out in the 15th but we had portfolio companies wiring like millions of dollars for their personal account trying to do everything CYA and just letting people know they're doing this for the right reason we had that Thursday evening.

[00:14:54] You have found her saying I'm moving all my our company money into my personal account and they had no they had no backup and there was no ability like everyone all the other banks are getting day-lushed we had companies with wires that were hundreds of millions of dollars out of like checking our money market.

[00:15:11] That were nowhere to be found at the end of day Thursday Friday could not be located they were in the ether somewhere but it was sheer chaos panic on behalf of not just us as a firm

[00:15:23] but all of these people out there who were just desperately just trying to run their business and never thought about this.

[00:15:28] I do want to talk about first republic I mean SVV was so fast that that was like the trauma but FRB was super important so come out bank I'm going to give you a hard time you know we did a podcast

[00:15:40] and I think you were sort of cheering for them also to be okay but like you didn't necessarily think they were going to fail what is your distillation of what happened with FRB?

[00:15:48] What one comment about would Peach has said it'll always be a mystery to me how it was that SVB sold off and took the $1.8 billion loss before they had lined up the equity.

[00:16:02] I never understand how that happened we saw that and I saw what was happening it was like that's not good that's not good.

[00:16:09] I mean it's a bank I know very well we bought the bank when it was at Merrill tried to again when it was a blackstone so I've been around that management team a lot of respect for them we were big clients investment

[00:16:19] great business should be very uncorrelated to SVB they don't have the same type of risk.

[00:16:25] I didn't think it would happen and in the end I guess a bank runs a bank run I mean just think about this fact three of the top 30 banks vanished in the last year

[00:16:34] that caused 530 billion dollars worth of losses there was 526 billion dollars of losses in the total great financial crisis that's what just happened

[00:16:44] and I just didn't think it would carry but when the government didn't react when they when the Silicon Valley bank went out on Friday morning

[00:16:53] what happened in the next by Sunday afternoon we'll be talking about for decades because the government didn't move they weren't ready.

[00:17:02] Pete and I were just talking about the conversations you were having with Treasury they were completely unaware of the impact of that was having and all the rest of the banks run to pressure

[00:17:11] and I'll never understand.

[00:17:12] You're complaining about like 12 hour difference between when they would have?

[00:17:15] I think if I remember the numbers right it was 10 o'clock in Friday morning and Treasury didn't make an announcement about a kind of a half-hearted backstop until Sunday afternoon that period basically told everyone in business

[00:17:27] in the United States that your deposits aren't safe that's what the message that's not what they intended to say but that's what they said.

[00:17:33] You agree with that?

[00:17:34] There's so many different important things that will go into the weekend which were to me fascinating.

[00:17:39] One Silicon Valley bank despite the outsized presence here was relatively unknown in DC and certainly even amongst major New York City money center banks.

[00:17:51] There were conversations that I had Saturday morning someone who's actually a great supporter but still banking financial services house member

[00:18:01] and I tried to reach out to him Friday night spoke to him on Saturday morning go what do you know about SVB's like I think they have some crypto exposure I'm like oh no okay.

[00:18:11] Who is this? Who is this?

[00:18:12] Not going to share but he's actually a very strong supporter during this but DC and the politics were unfortunate in terms of the naming of the bank right it was literally like the civil and Nazi policy banking enterprise.

[00:18:24] Are you the rich Democrats even worse?

[00:18:26] Exactly.

[00:18:27] And that was like what and we talked about this but I figured that we would have strong support from Silicon Valley like Rokana who both of us know and others but I quickly first started to fear that there was a banking contagion because I don't that weekend our member in L.A.

[00:18:43] which is not Silicon Valley at a first republic branch there was a line around the block of people trying to withdraw money from from first republic that was something that I use when speaking to Republican congressmen and senators trying to tell them basically and some of them specifically said why should I care who care you know it doesn't matter to my constituents

[00:19:04] and I said well respectfully imagine in Kentucky if any of these other regional banks without you know with $250,000 limits why would you keep it there and not in you know it was a G-Sib bank why would anyone he's like well my constituents don't have $250,000 fair.

[00:19:20] All right let me think about how do I recast this but still the fear of regional banking contagion to me was the strong one that weekend and I think that was the only thing that got the federal government to move

[00:19:31] because like treasure was not talking about it on Thursday FDIC was on top of it but you also had the administration the White House didn't want to touch this did not look sort of this still this is like okay the government does come in for SVB

[00:19:45] but not so fast that we're like oh they're really back in banks and so that creates some of the room prefer our beta fail because there's

[00:19:52] no confidence that the government necessarily will step up I want to get to the present day so just a quick it's the domino effect we all saw in 2008 it was the same thing first you had bear then you had

[00:20:03] Lehman immediately after you have the sale of Maryland just if the dominos fall faster and so I think people pattern recognized they were like well well if that goes down then it's got signature

[00:20:12] interestingly and look at John Schruzberry's here was the CFO of Wells Fargo for a long time nobody's worried about the big banks it was all focused on the little banks they're like okay we saw the big banks in 2008 but what about the regional banks and that's why I think it created the panic the domino effect

[00:20:28] it was mob justice by the way because I remember watching like Bloomberg during that period of time and it was whoever is next right so it's like a mob going around the baseball bat like who is next and so that's even like fortunately even though there's been some discussion

[00:20:43] around was it New York Community Bank or Commerce Bank which has large commercial real estate exposure people are looking for the next domino to fall and you have an entire group of people generally

[00:20:53] hedge fund managers short you know short sellers everyone's looking to identify call that person out and it's an easy trade it's easy money to made and so people do it

[00:21:02] all right a lot of bankers on stage what is your sort of straight talk of the competitive dynamic between the banks right now for venture funds and startups business

[00:21:12] I think the model's going to change I think that the idea that that the VCs will always be there to back their companies is kind of a soft backstop is going to change

[00:21:22] so I think credit is present since Silicon Valley is going to get a lot tighter for a long time

[00:21:27] so less relationship more just shopping for rates and less trusting VCs and more of it's a little bit like the mortgage company so you don't read about anymore remember the ones that I started the whole fall in 2008 there's no country wide anymore

[00:21:39] it's a little bit like that I think it'll be getting much smaller you agree with that I think there's going to be kind of mainstream banks that will serve this ecosystem

[00:21:47] and I think you've seen a lot of great people from SAB and FRB go to other banks there will be competition I think it's probably segmented on product so it could be you know

[00:21:57] hardware is a service loans specialization life sciences you go to this specific bank it used to just be for the most part if the you know is always similar

[00:22:06] and they were always better just you know stay with SBB I think it will change but I do think like it's probably positive in the long term for the ecosystem even if credit conditions

[00:22:15] will tighten for a very long time because of competition because of competition I think a lot of other people probably tried to get in and you saw like groups like

[00:22:23] Comerica for years is trying to really work in never really worked you know first Republic built and I know Sam's here a prominent group with Samir and others

[00:22:32] but but I do think there will it will be more banks providing more services but credit conditions again not as favorable as they were pre SAB crisis

[00:22:41] all right we'll take a question hi there Anthony steel from steel cons speaking of lessons learned I'm curious is to your thoughts on whether if SAB had communicated better more effectively from the get go

[00:22:53] or whether a run could have been avoided and by that I mean issuing their press release that they were looking to raise cash spooked investors, spooked creditors

[00:23:01] there was not a lot of effective conveying the rationale behind that particularly with silvicate that had just gone and then there was a seem to be avoid online of communication from leadership as to why we're doing this

[00:23:14] and when people say hey guys don't worry it's okay don't panic everybody panics so yeah very question you know it's funny if first public did the same thing they were very quiet

[00:23:24] I just think you're so constrained running a public company I just think there's so few things you can do and you can say

[00:23:29] and when a run comes I just think it's like a title wave title waves don't beg forgiveness we're not gonna get you on style banks

[00:23:36] I mean I do think you know in Silicon Valley that style of Twitter personas taking over and if you're gonna bank Silicon Valley

[00:23:42] being in the mix or is that naive is just like impossible for me I just I if you're running a regulated bank I just think it's so hard for you to come out and go

[00:23:50] everything's fine and actually they did you know and they tried to sway his concerns but I think that just fueled the flames and I just think it's impossible to be able to communicate your way out of it

[00:24:00] the government should have been the one communicating I think they should have come up with that plan before they seize SVB and said this is what we're gonna do to temporarily calm this thing down

[00:24:09] and backstop it and they turned it into a political issue and just said not too bad.

[00:24:13] So something really quickly add I had heard and it could just be total rank speculation that there was a large money center bank that before

[00:24:22] things went totally downhill that wanted to buy SVB and that the US government going standing to the White House but Treasury FDIC did not want that why

[00:24:33] they didn't want greater concentration in the banking system so as I said that weekend it became clear to me only through a handful of conversations

[00:24:39] and I think that the US government is going to be able to do that and that's why it's not going to be helpful because there's a very powerful faction

[00:24:46] not just in the administration but Democratic Senate that do not want to see the big get bigger and so that actually I think served as a huge headwind to a constructive solution.

[00:24:56] Awesome I'm Ali Road from outset capital thank you both for joining thanks Eric for having us here

[00:25:02] and I'm going to ask you guys where are you guys telling your portfolio companies to put their money now

[00:25:07] and specifically SVB for citizens FRB with JP Morgan also want to call out the Mercury Brex arc others in the world

[00:25:16] which are of course they're not actually banks they're using mostly like evolve and choice.

[00:25:20] I asked this a both of you but maybe specifically a little bit more Lawrence who called SVB maybe a little bit less FRB

[00:25:26] so what do people do now?

[00:25:28] Out of every like damaging thing that happens to the valley one of the beautiful things as we figure out how to fix it

[00:25:33] right we the innovations sometimes spurred and fastest things when things don't go right so we're actually I think what's going to happen right now

[00:25:41] we're seeing a lot of investment in treasury systems and risk systems Steve Helmer X here is the CEO of Treasury 4

[00:25:48] that's an example of a platform that's going into private companies and saying break up your deposits.

[00:25:53] You should have the systems and process and part of its systems and process that's why these CEOs were actually wiring money to their own accounts

[00:26:00] because they couldn't open accounts quickly enough.

[00:26:02] I think what you'll see is you'll see a big leap forward in the capital that's being invested in the technology it takes

[00:26:07] to properly assess manage your risk and diversify your deposits.

[00:26:11] Okay great but they still have to have deposits somewhere so where do they go?

[00:26:14] So the answer would be I mean what we did before this is we looked at the ratings of the banks

[00:26:19] so we don't have any of our portfolio companies in any non investment grade banks.

[00:26:23] Silicon Valley Bank was not an investment grade bank period.

[00:26:26] I don't want to offend anybody but not not an honest and a John you had a you had a question.

[00:26:31] I was just a comment on the idea that a big bank would have come into bailed amount.

[00:26:37] There's a 10% deposit gap for market share for big banks in this country so action and assisted transaction

[00:26:43] they couldn't have proposed in the private market to solve that.

[00:26:46] Now when Jake Morgan came in for first public that was assisted they said go ahead and do it.

[00:26:52] That seemed very unlikely for the reasons that you mentioned.

[00:26:55] I think they communicated there were not.

[00:26:57] They were not willing to assist right?

[00:27:00] I don't know what point in time if that was pre I think it was shortly thereafter before there was the bridge bank

[00:27:06] that they communicated we're not willing to assist for some period of time.

[00:27:10] We could do this all day and thank you so much for being our truth tellers.

[00:27:14] I'm sure people will pin you down in the crowd and get other takes Peter LT thanks so much we're going to hear from JB Morgan.

[00:27:22] Thank you.

[00:27:23] We've got the Silicon Valley Bank president Mark Cadier coming up what a difference a year makes.

[00:27:31] Thank you so much for being here.

[00:27:32] Thanks for having me it's great to be here.

[00:27:34] So maybe just a level set before you go to your first question for everyone's benefit.

[00:27:38] Just a couple things I cannot talk about today it's events prior to March 10th.

[00:27:43] Any active litigation and SBB financial group is a separate story today from SBB commercial division of first citizens bank and so just wanted to

[00:27:53] blur that out that leaves plenty of course we can talk about.

[00:27:57] And thank you so much for being here.

[00:27:59] I know it's so just tell us what has the last year been like for you I mean rebuilding some of that trust rebuilding the

[00:28:05] relationships what what is your last year look like I think I'll start by saying the last year has been a lot about trying to correct

[00:28:12] what I think of as a false narrative that SBB went away.

[00:28:17] SBB left avoid.

[00:28:19] SBB isn't here to do all the things that we did before but the truth is we never left we've been open for business first as a bridge bank then following the

[00:28:28] acquisition of first citizens.

[00:28:30] You were yes SBB for a period right?

[00:28:32] Yes SBB is it is hard to have the word failure I mean there it is technically true that SBB failed and that yeah that's six with people.

[00:28:41] Yes and back so quickly added I think is the story we continue to get out in that false narrative we've been trying to correct ever since and one of the

[00:28:52] things that we've been so excited to be here today to talk about so you asked about the last year and it's been again right back at it doing all the same things we did for 40 years before.

[00:29:02] All the same lending at the same dollar amounts across all the different sectors and stages of development we originated three billion dollars in our tech and health care

[00:29:11] business alone in new loans in the last nine months of 23 together with our new colleagues at first citizens.

[00:29:18] One of so many data points that I think tell a story about being back and being back on that journey to rebuild the trust by doing all the things we did so well.

[00:29:27] You lost 40 billion basically on March 9th right during the crisis there was a fear you'd lose 100 billion how much of that did you get back?

[00:29:37] I think you've talked about getting something like 80% around the depositors back like how much of the money came back.

[00:29:44] So I think the best way to think about this is what happened after and so starting in April and again I'll contain my comments to through the fourth quarter of 23 were public companies have to call that out but starting in April and through the end of last year deposits just in the SBB

[00:30:06] division have remained average deposits have remained stable and that I think is probably the best evidence of all when you think about diminished venture investing everyone has two banks now many of our clients are still burning cash that stable deposit story.

[00:30:24] We think tells a story about what's been going on under the covers which is I think you mentioned 81% of our clients are still our clients thousands have returned and we expect in the fullest of time that that remaining 19% that's out there somewhere that we hope to bring them back as well.

[00:30:39] I open with this idea about trust and yeah you talk about bringing back those 19%. Can you take stock like so much of banking at its core is a trust relationship.

[00:30:50] You know a lot of people don't want to think about how their bank works. How do you reassure customers when it's like you know yeah I just assume Silicon Valley bank would work now we've seen it not work one time why should I trust you again like what do you tell them so starting with all the things that are so different now being part of first citizens is a completely different financial picture very stable deposit base very well capitalized and then with extra liquidity that came with the acquisition

[00:31:19] and so that right there just creates a completely different picture the rest of it is I think about showing up consistently being the best version of ourselves and doing all those things that mattered so much to our clients before.

[00:31:34] And I think matter even more in times like these when you are innovation economy target market is continuing to go through some tough times and it's one more reason why it's great to be us open for business enabled to support our companies are clients when they need us the most.

[00:31:52] And I want to get into some of those specifics I mean I'm curious what you think about like trust on the other side I mean there is a sense that it was a two way relationship and you know venture firms part of what made Silicon Valley great makes Silicon Valley great is understanding the top firms and having this reciprocal relationship with them.

[00:32:10] Do you feel burned that people were so quick to run in the panic? No I do not I think this is a it's another spin on intent and impact.

[00:32:21] I don't think there was any intention to bring down SVB that was an unfortunate impact and as I think we saw immediately thereafter a outpouring of support for the venture community of it effect this is not what we intended and we really want them back and again it's great to be back.

[00:32:39] So tell us a little bit about SVB under first citizens not a bank that was on Silicon Valley radar necessarily before the steel.

[00:32:47] Why does first citizens make sense and how is sort of that integration coming together yet so first citizens makes sense for so many reasons that would perhaps be less obvious when you start at the appearances you get beyond the superficial what I've come to discover is my new colleagues and the folks that I share time with now executive leadership team are.

[00:33:08] Just like us man all the ways that matter the most they care deeply about relationships they care about long term thinking they care about being you know financially stable but they're not averse to taking risks along as it's well managed well understood and so again a lot of things that are.

[00:33:27] So many more similarities than differences and that support has been great the second thing I would say is this might be the first instance maybe there's another one out there somewhere but generally speaking when banks acquire other banks they usually integrate them in and the magic the value that was there is oftentimes lost.

[00:33:48] So that's why we're talking about the first citizens has taken a completely different approach of kind of ring-fencing SVB letting SVB be SVB and ensuring that that value proposition is preserved and not broken in some way shape or form so you asked about integration specifically we've been very patient in our approach and planning it out and making sure that we make the most of all of what SVB brings to the broader for citizens.

[00:34:15] So I think that's really just now again has talked about in our fourth quarter earnings just now getting to the what I think of as operational integration of that we expect to complete over the course of 24 but be that as it may at the back end of that I don't think our clients are going to notice any difference at all the SVB solutions platform is going to remain intact do they see for like how much is first citizens on your customers radar at all.

[00:34:41] One of the questions that we got and I think in tracking social media was who is first citizens because they weren't as well known prior to buying so I love questions like this because it gives me the opportunity to talk about first citizens and yeah they've been around for 125 years they've been amazingly successful and it is now a dramatically different financial institution with the acquisition of SVB and the acquisition of CIT roughly a year or so before they acquired us.

[00:35:11] Let's talk about like specific products right now and I mean venture debt is obviously so core to what you guys do what's your view it's sort of in a funny moment where you know we have all these banks here some of your former colleagues competing for the same business but this is not like prime Silicon Valley you know we are it's not 2021 we're sort of still in a downturn how is that affecting the competitive dynamic and then also just how you think about loaning to startups when this is not.

[00:35:41] Not necessarily the bull market for startups I again continue to be open for business doing all of the lending that we did before across all segments including venture.

[00:35:53] Was and not going to speculate on on the statistic but a healthy chunk of that three billion of loan origination I talked about before is venture debt origination and yes our target markets are facing some headwinds and continue to but brand new companies are getting funded as well.

[00:36:10] In fact we've seen some of what we hope are green shoots in that space and I would contend that any newly minted series a company today is probably on average pound for pound a better looking prospect and we want to be lending to those all day long and we aren't right there's an argument that this is a good vintage to be lending.

[00:36:30] Oh yeah right is that your view or it is generally speaking it is at the early stage of the spectrum and then you can get into different sectors and it might not be completely even across the board and then you get into those mid and later stages.

[00:36:45] But that is I think one of the things that we bring to the table is that 30 plus years of venture lending through multiple cycles enables us to originate smartly but also be that patient thoughtful lender rate.

[00:36:59] Nothing ever goes from great idea to great company there are always setbacks along the way and one of the ways SVB long distinguished itself and continues to is how we approach those situations understanding that that is what happens and not freaking out what we do.

[00:37:14] Freaking out what it does and working with our clients and again in an environment like this is one of the most important things we can do for our clients at this moment.

[00:37:24] Have you had any of those cases post acquisition or have you have your feet into the fire on a case where you have to be particularly sympathetic to us start up at the moment?

[00:37:34] Oh sure yeah unsurprisingly as companies we have all heard a lot about companies working to reduce their cash burn and oftentimes debt service could be a significant chunk of that.

[00:37:45] And so yeah we have certainly had those conversations with the number of our clients who need some relief as they try to get from here to where they are going and we welcome those conversations again we have done this for 30 years we are not going anywhere.

[00:37:59] How early of a company will you start banking like pre venture or do they need to have some venture capital funding so banking starts yeah we'd love to meet them at formation stage like right after you sign those formation documents with your lawyer you know come on down we'd love to be your bank we generally start lending post series and how are you thinking about sort of deposits when lending or like what you know do people have to keep 80% of their money with you if they're.

[00:38:28] They're taking loans from you so we like every other lender have a we want to be relationship bankers and so we want to be the relationship bank in connection with that we like every other lender do require some percentage of total funds not necessarily on balance sheet deposits but total funds to be with SVB either deposits on the balance sheet or managed off balance sheet by said.

[00:38:57] SVB asset management following the events of last March we actually took that requirement down to 50% recognizing that everybody has to banks now we're on a journey to rebuild trust there's no rush again we were with first citizens and there's plenty of liquidity plenty of support and so we can be patient on bringing back those deposits and that has been the approach we're seeing it get back to a place now where 80% is around the market standards

[00:39:27] so we've drifted back to that place to again the yeah the crisis is well behind us and so we're back on that level playing field but again the key point is we're not requiring the deposits to be on balance sheet and that is different from some of our competitors who really do need those deposits in order to reduce loans.

[00:39:47] What what do you tell people to give them confidence in the deposits right now what you know there was a period where you guys could say oh or the safest back in the world you know or the FDIC is totally different

[00:39:56] so it's totally guaranteed these are like what sort of been this storyline along the way in terms of how safe the deposits are what what is the message at the moment.

[00:40:06] Again it all starts with first citizens and we are yes we're the SVB division but we're also first citizens one of the fund stats from the fourth quarter is all of deposits plus all of that extra liquidity support I mentioned covers uninsured deposits around 270%

[00:40:26] so you could take every dollar out two times over and it's all still going to be fine that puts us in I think a very rare place relative to other financial institutions yeah I'm not sure what the very largest could say about that but when I think about financial institution hour size roughly you have 220 billion or so in assets that is a pretty good story to tell we think and it's been very well received by clients and investors alike.

[00:40:55] What is your view we touched on this but I wanted to sort of more for some answer on the the comeback or where we are in this sort of you know there 2021 wild 2022 going down I feel like 23 we entered it was like oh baby it'll come back it will feel good and still seems like venture activity fell do you have a prediction specifically on 2024 whether it will be we'll see more activity than we saw in 2023.

[00:41:22] So here one of the other things SVB has long done in addition to all the banking services product service etc is insights and connections and on the insight front we just published our most recent state of the market report a couple weeks ago where we talk about the environment and our predictions for the year ahead and things like that so turning to that yes you have 24 I think we think will be another difficult year hopefully not

[00:41:52] as difficult as 23 hopefully things will start to turn I mentioned green shoots earlier and that is an encouraging sign and my hope is that we are closer to the end and then the beginning though I would preface this again by saying I can't tell the future perfectly and we're certainly prepared for worse and if it's better that's fine obviously better would better sooner would be great but in the meantime again it's a great time to be us because as long as this tougher weather lasts we have it even greater opportunity to be there for

[00:42:22] our clients and to correct that false narrative I mentioned before SVB is in the relationship business at the end of the day and the people you know there are obviously people that have left you know some of them are being sued who are the sort of core anchors of SVB right now what are the teams that you think have held strong and like what can you assure people that those relationships they have are still at SVB yeah all of them and I'm not exaggerating there we still have so much more

[00:42:52] much has been written about the all the folks that departed what gets missed again in this narrative is all the folks who state right 80% of the folks that were there before are still we have the biggest group of market facing bankers in the US of I expect anyone 1500 strong still and that spans again all

[00:43:14] of the teams all the sectors all the segments and so it's all still there and we're still delivering across the board for our clients

[00:43:23] we sort of jumped into it I want to hear a little more of your personal story are you surprised to become

[00:43:28] CEO of SVB or how when it all you know the fall I was happening how did you sort of ascend to CEO and what was your sort

[00:43:36] of personal story there so I'll just do a quick title correction I made division president yeah sorry

[00:43:41] yeah so in the initial innings of the bridge bank I was I had been the chief credit officer for the prior decade and so my initial focus was

[00:43:52] entirely focused on restarting lending in part so folks could draw on those lines of credit they were

[00:43:58] depending on to make their payrolls right and then when we reopen the bank and so that was my initial focus

[00:44:04] all about halfway through the second week and as you might imagine at that time a number of us were wearing

[00:44:11] multiple hats in our bridge bank CEO at the time gentlemen appointed by the FDIC asked me to step in to be

[00:44:17] the interim head of the commercial bank which I was of course happy to do we were all doing anything

[00:44:23] and everything we could to make this turnout right and so then met my new colleagues at first citizens

[00:44:29] that first Sunday night and while I did mention in that first meeting that I'm the chief credit officer actually

[00:44:35] I'm not really the president of the company they elected to keep me in that interim role and ultimately maybe

[00:44:41] the the president in June I know you're limited on what you can say about the past and we're going to dig into

[00:44:46] that in the next panel but you know the sense the actual like venture debt the strategy as SVB besides

[00:44:56] like the banks holdings and the investments in terms of long-term securities like you think that has been

[00:45:02] validated or by this acquisition or how do you think about the actual you know lending strategy of I guess

[00:45:10] the OG SVB yeah I think the the lending strategy of SVB was I think yeah the record speaks for itself it was

[00:45:20] very successful we had great credit quality and and that you know we prove that out over a number of

[00:45:27] decades so and again we still have all the talent to do that well do it reliably and so that continues on

[00:45:34] I'm gonna we're gonna throw it out to questions so think of your questions and there'll be people running around

[00:45:39] with mics and I'll ask a question well you think what what is the next year look for you like I

[00:45:44] imagine part of it is like okay we've hit the one year of this crisis hopefully we never have to talk

[00:45:49] about the crisis again like what what are your goals just sort of as a bank moving forward for the next

[00:45:55] year yeah so it's really I if I were to boil it down into two big overarching themes the first would

[00:46:02] be everything we were doing in 23 right that that false narrative that rebuilding of trust all of

[00:46:09] that happens if we continue to show up consistently doing all the things that we did before that

[00:46:14] were so important to our target market and so that is for sure goal number one matters a lot

[00:46:21] but then I mentioned the operational integration and what's we're we're into this really interesting

[00:46:28] point post acquisition where we're now starting to figure out what is the best most thoughtful way

[00:46:36] to put the various pieces of the broader for a citizen's commercial bank together in a way

[00:46:42] that enables us on the back end of operational integration to deliver an even broader deeper better

[00:46:50] value proposition by virtue of being able for example to avail ourselves of the products and

[00:46:56] solutions on the CIT platform that would be of interest to our clients and vice versa what's that

[00:47:01] sorry the CIT platform yes CIT was the acquisition for citizens made roughly a year or so before

[00:47:08] they acquired us and there are a number of complimentary vertical business lines there that we think

[00:47:15] will be of great interest to our clients and so you could sum this up by saying my other big goal

[00:47:22] is to create an even better version of the SVB that was there before by virtue of all that is

[00:47:29] right there with the broader for citizens that we are now a part of questions

[00:47:34] so what's the client makes look like now right I don't know software tech firms you know biotech

[00:47:42] venture to use still handle venture funds stuff like that I don't have some exact numbers which is

[00:47:47] roughly yet so broadly speaking all the same sectors stages of development you mentioned venture

[00:47:56] so our global fund banking business venture firms and funds private equity firms and funds

[00:48:02] it's really the same and again everything from the very earliest stages all the way up to large

[00:48:10] corporates and everything in between while there was roughly 20% of employees in my org the commercial

[00:48:16] bank work that departed 80% remain and so in some instances clients have the exact same team serving

[00:48:23] them that they did before in other instances maybe that yeah some of those people are still there

[00:48:28] and they've met some new ones but the wonderful thing about SVB is we had such a deep deep bench

[00:48:34] of talent that our ability to backfill from our own resources was there from the beginning and so

[00:48:41] we never really skipped a beat in terms of our ability to be back in front of our clients maybe with

[00:48:46] the new banker but back in front of our clients another question yep in the back

[00:48:52] uh mark thanks for being here I'm curious like this is like the first bank run that happened on

[00:48:57] the internet right I think what why I'm who was the last one I mean the ability to get money out

[00:49:01] that fast and bank do you think there's needs to be regulatory change like related to that so

[00:49:06] that that couldn't happen again like where you could take $28 billion out in 24 hours I mean

[00:49:11] I'm just curious it was very I mean as if again it was the first time that that had ever happened

[00:49:16] so I'm just curious like your comments on on that yeah so as noted the run was unprecedented in

[00:49:22] its speed and scale enabled by yeah banking on your phone and and so much has been written about

[00:49:28] that and and will you will it remains to be seen in the fullness time what if any regulation

[00:49:34] we'll see come from that what I'll say there is yeah bankings are regulated industry it should be

[00:49:41] I've long said regulation makes us better as a business and we want to be the very best version

[00:49:46] of ourselves that's what the clients of the bank for the innovation economy you should expect from

[00:49:52] us and and that's what we strive for every day but do you think there should be symbols for your

[00:49:55] customers about quickly making withdrawal funds I think that would probably upset the apple card

[00:50:02] a little bit in terms of you have part of that trust in faith you mentioned before in the banking

[00:50:06] industry is based on I can get my deposits when I need them and so I would be personal opinion

[00:50:13] I'd be surprised if that's where this went but the question was about like the relationship

[00:50:18] banking sort of private wealth and how much activity there is with SVV so and yes exactly I'll

[00:50:23] repackage a little bit in that there was another entity part of SVV we called SVV private and

[00:50:32] so when first citizens acquired SVV they acquired the commercial bank part that I run as well as

[00:50:38] the private bank and while SVV private has recently been rebranded as first citizens wealth

[00:50:45] same people are there the same solutions the same focus on taking care of the individuals that

[00:50:51] occupy those first two important categories right the entrepreneurs and those innovation companies

[00:50:58] and then the investors that support them those individuals working in both places still need

[00:51:03] the same spoke product services that same banker who speaks innovation economy and knows what

[00:51:09] the unique challenges of an entrepreneur or up and coming venture capitalists let's say might be

[00:51:13] and and that is all still resident within first citizens wealth are they doing the same math you

[00:51:19] know so much VCs are going to be rich in the future sorry founders are going to be rich in

[00:51:23] the future and SVV sort of had a good sense of the trajectory of that in some confidence and who

[00:51:28] is safe to give personal loans to like are you guys still doing the same math I guess is the question

[00:51:33] the same math I would say we're still doing all the same things that made us successful before

[00:51:40] including taking care of founders investors etc within that part of the organization

[00:51:47] Mark Adrier what a difference of your mix thank you so much thanks so much that's our episode thanks

[00:51:53] so much for listening this has been the newcomer podcast I'm Eric newcomer we'll have more episodes on

[00:51:59] our YouTube channel and you can check out our banking summit content at newcomer dot co thanks so

[00:52:06] much to jico and bank capital ventures for sponsoring the summit thanks so much