Silicon Valley Bank has been operating as a division of First Citizens Bank for nearly 18 months following its high-profile collapse in March 2023. ABF Journal recently caught up with Peter Bristow and Marc Cadieux for a post-acquisition update.

By Erin Rafter & Rita E. Garwood

Much like its outbreak, the aftermath of the COVID-19 pandemic had an enormous and long-term impact on the global economy. Silicon Valley Bank (SVB) was the 16th largest U.S. bank at the end of 2022, with assets totaling $209 billion, according to the FDIC. Its success was tied to its specialized financing and banking services for venture capital-backed companies, mainly in the technology sector, which experienced a major uptick in growth during the pandemic.

In March 2023, California regulators placed SVB into receivership under the FDIC, marking the largest bank failure since the 2008 global financial crisis. The collapse was attributed to several interrelated factors, including a lack of diversification exacerbated by 2022’s interest rate hikes and a bank run fueled by client panic that played out on social media.

The FDIC recovered all insured deposits and provided advanced dividends to uninsured depositors. SVB Financial Group, the bank’s former parent company, filed a voluntary petition for Chapter 11 reorganization to preserve value. On March 26, 2023, the FDIC announced that First Citizens Bank would acquire Silicon Valley Bank and all 17 of its U.S.-based  offices, and $72 billion of the bank’s assets at a discount of $16.5 billion.

A Unique Value Proposition

SVB has been operating as a division of First Citizens Bank ever since. Marc Cadieux, president of SVB, says SVB’s operations are primarily divided into two main parts: Global Fund Banking, which serves the banking needs of venture capital and private equity firms, and Healthcare and Technology, which often serves portfolio companies of venture capital and private equity investors.

The two businesses tailor their approach to different sectors and segments; for example, Cadieux points out that while the banking needs of investor and operators may overlap in some ways, there are distinct nuances between the cohorts reflected in SVB’s go-to-market strategy. SVB’s technology and healthcare business is organized according to a company’s stage of growth: venture capital-backed companies with $0 to $75 million in revenue and corporate banking clients with more than $75 million in revenue, for example.

“If you’re a client in our tech and healthcare business, you’re not just going to get someone who understands where you are from a stage of development, they also understand your sector – software, robotics or climate technology for example,” Cadieux says. “Whichever vertical you’re in, you’re going to get somebody that is very attuned to what your business is about and where you sit in the market that you’re trying to compete in. And that, in turn, enables us to deliver a much more targeted and broader value proposition and to be a connector of the people in those companies to other folks of that broader community. That’s a big part of the role we play by virtue of how we’re organized.”

This value proposition created a unique opportunity for First Citizens Bank. Peter Bristow, president of First Citizens Bank and leader of its commercial banking segment, says the scale and size of the transaction, as well as SVB’s unique business model and market share in the innovation space, presented a fantastic acquisition opportunity. Given SVB’s capabilities, First Citizens adopted a strategy similar to what it deployed in its merger with CIT Group in early 2022.

“CIT had industry verticals and excelled in them. SVB presented the same opportunity for us, and so we jumped all over it,” Bristow says. “As much as we can, we want to keep the SVB identity, what they do and who they serve and their focus on innovation. That marker and identity is going to be crucial moving forward.”

The More Things Change, The More They Stay the Same

Cadieux says most post-acquisition changes at SVB involved parts of the business that First Citizens did not acquire, such as several international operations. However, SVB’s operations in the U.S., including its international banking capabilities, have continued smoothly. Cadieux, a 32-year veteran of SVB, credits the retention of SVB’s experienced team as a key factor in the merger’s success.

“We’re maintaining all the same products and services, lending practices and dollar amounts as before,” Cadieux says. “SVB’s legacy team is still approving credits under the oversight of our new colleagues at First Citizens. [First Citizens] has done a marvelous job of letting SVB be SVB and operate the way we did it for the past 40 years. This approach is what enabled us to, in a relatively short period of time, stabilize the business, which our first [and second] quarter results show.”

“The uniqueness of [SVB’s] model is so important to the innovation economy that we found that nobody else can do it better than they  do,,” Bristow says, on the decision to retain SVB’s branding and business model. “If you’ve got a unique identifier, it sets you apart  from the market, I think that’s something that we need to stay focused on celebrating.”

Along with many of the challenges that come with any merger, Bristow says First Citizens’ primary focus in the acquisition has been stabilization. “When I say stabilization, I’m talking about stabilization of the client, stabilization of employees and stabilization of the process – all of which has gone really well.” Bristow and Cadieux agree that this has been achieved by giving the SVB team the freedom to continue successful practices and rebuild the bank’s standing.

Vision for the Future

 Both Bristow and Cadieux are optimistic about SVB’s future as a division of First Citizens Bank and see numerous opportunities ahead as their strategy focuses on client retention and deposit growth.

Cadieux, citing Stephen M.R. Covey’s Book, “The Speed of Trust” emphasizes the importance of rebuilding trust one day, one client and one loan at a time. “We’ve done a great job so far at consistently being the best version of ourselves in so far as we are committed to make the most of the second chance and earn back that trust that we enjoyed with our clients for the 40 years prior.”

Looking ahead, Bristow is focused on “building out the best commercial bank.” He sees potential in identifying synergies between First Citizens and SVB while keeping technology and innovation central to SVB’s operations.

To facilitate these synergies, Cadieux says the organizations are working toward operational integration. “What I’m frankly very excited about is on the other side of that will be an ability for SVB to more easily — and in a way that is an integrated client experience — be able to provide additional commercial banking solutions to our clients and vice versa,” Cadieux says. “When I think about the broader First Citizens commercial bank, we will together have a broader, deeper solution set for all of our clients. And that, in turn, sets up First Citizens to potentially be a very, very different top 20 financial institution.”

Bristow notes that SVB Go, a digital banking platform, presents even more potential for success following the acquisition. “From a customer standpoint, the feedback [on SVB Go] has been tremendous,” Bristow says. “They own it, and they built it, and that’s helpful because you can now meet your clients where they are as opposed to being dependent on the outside.”

Industry Outlook

When it comes to the market at large, Cadieux and Bristow share an overall bullish outlook. Bristow is positive about growth prospects, despite increased competition and pricing pressures. Cadieux believes that debt financing’s relevance will remain elevated in response to the current economic conditions and that when equity financing rises again, it will do so thoughtfully, carefully and with better balance to debt financing. He also sees today’s startups as better investment prospects compared to those from the 2020 to 2021 boom years. “Based on what we’ve seen in prior downturns and what happens coming out of them, I think the bar will remain high for some time to come,” Cadieux says. “And that too will in turn make for more quality prospects to lend to.”

“Over the last 125 years, First Citizens has always focused on the relationship side of businesses,” Bristow says. “Once you get here, you don’t leave because of the relationships. SVB is 100% the same way, doing different things but absolutely focused on being a trusted advisor and relationship builder.”

 

Erin Rafter is associate editor and Rita E. Garwood is editor in chief of ABF Journal.