What First Citizens Bank’s Acquisition of SVB Assets Means for Its Wine Division

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On March 27, the Federal Deposit Insurance Corporation (FDIC) announced in a press release that Silicon Valley Bank (SVB) was officially acquired by North Carolina-based First Citizens Bank.

Just over two weeks after many tech startups and venture capitalists withdrew vast sums of money from SVB, it crashed—the second-biggest bank collapse in U.S. history. The announcement ended two weeks of uncertainty for bank employees and the roughly 400 wineries that maintained accounts with its wine division.

SVB’s business is currently running as usual, but there are still many questions for the future of the bank, its wine division and its highly respected annual State of the Wine Industry Report.

“I don’t think we could have ended up in a better spot,” says Rob McMillan, SVB wine department founder and executive vice president. “We’ve been given the trust and freedom to operate like we always have and were able to keep our brand. First Citizens has been around 125 years and have pretty deep agriculture experience with mostly all family farms—that’s pretty much what we do.”

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At the time of its collapse, SVB had approximately $167 billion in total assets and about $119 billion in total deposits. As part of the deal, First Citizens purchased around $72 billion of SVB’s U.S. assets at a discount of around $16.5 billion. The purchase did not include SVB’s foreign subsidiaries.

“The supposition is that First Citizens was attracted to Silicon Valley Bank because it has a diversified portfolio with a touch of what they already do, especially on the agriculture side,” says Rob Eyler, Ph.D., a professor of economics at Sonoma State University. “They should know about wine at least on the farming side.”

The other $90 billion in securities and other assets will remain in receivership for disposition by the FDIC. A good portion of those funds will re-up the coffers of the FDIC’s Deposit Insurance Fund (DIF), which was tapped to cover all of SVB’s depositors—even those above the $250,000 insured limit—under the systemic risk exception that was approved by the FDIC, Department of the Treasury, Federal Reserve and President Biden earlier this month.

The FDIC approximates that the failure of Silicon Valley Bank cost the DIF, which is funded by quarterly fees assessed on FDIC-insured financial institutions and government bond interest, around $20 billion.

Now, the 17 branches of the bank are operating at Silicon Valley Bank, a division of First Citizens Bank. According to a press release issued by First Citizens, there will be no immediate changes to customers’ bank accounts and loan customers should continue to make payments as usual.

The economists who spoke to Wine Enthusiast don’t foresee any major changes to SVB’s operations for the near term.

“It takes a long time to integrate a new bank’s business into another bank,” says Connel Fullenkamp, Ph.D., an economist at Duke University in North Carolina. “For the most part, they operate in parallel for awhile while the banks try to integrate the back-office stuff… One of the main things that will happen, Citizens will do a review of all the different kinds of lending Silicon Valley Bank has been doing to see if it’s a good fit for their portfolio.”

That sort of review could be a major concern for the wine industry, given that SVB was its top lender. The bank currently holds nearly $1.2 billion in loans to wine clients, some of which have seen funding delays amid the recent turmoil.

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Fullenkamp believes that SVB’s winery clients are going to have as sympathetic a situation as possible given First Citizens’ history of lending to small businesses and North Carolina’s agriculture industry. “Given the way they’ve evolved, I think they’re going to be fairly friendly to this type of business,” he says.

Even Marcus Goodfellow, proprietor and winemaker of Goodfellow Family Cellars, would consider going back to SVB for a future loan. This is in spite of the fact that his last loan got stuck in limbo for nearly a week: The loan on his property in the Willamette Valley was slated to close the day SVB shuttered; it ended up taking four extra days with several unusual details to work around, such as the outside legal counsel for the bank having to change the language of the engagement letter from Silicon Valley Bank to Silicon Valley Bridge Bank in the final days.

Yet, he remained sympathetic to the staff throughout the process. “The banking team is very good,” says Goodfellow. “Obviously, if First Citizens doesn’t allow the wine team the same leeway, that would be an issue.”

According to McMillan, it’s still business as usual for just about every aspect of the wine division. Budgets still need to be discussed, but the lauded wine report is slated to continue and the company may even add additional reports throughout the year, including quarterly financial statements and similar studies.

SVB has been able to retain 100% of its staff, has continued closing out loans that were already in process, like Goodfellows, and have even been booking new loans throughout the FDIC takeover and subsequent acquisition.

“We actually ended up with more clients than we had before the crisis and, as far as I know, nobody has left,” says McMillan.

Published on March 31, 2023
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