Employees across Santa Barbara County’s tech and wine regions on Monday were struggling with last week’s collapse of Silicon Valley Bank.
In what one local wine industry official termed “a huge loss,” the annual State of the Industry report produced by Rob McMillian, VP of the bank’s wine division, may be a victim of Silicon Valley Bank’s closure.
In a weekend post on his blog — formerly the “SVB on Wine” and now “Rob McMillan on Wine” — McMillan spoke directly to the public:
“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,” McMillan wrote.
“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.”
What led to the collapse? Silicon Valley Bank’s customers tried to withdraw $42 billion last Thursday alone, leaving it with a negative cash balance of $958 million, according to a filing by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as regulator.
Silicon Valley Bank, founded in 1983, had 17 branches in California and Massachusetts.
Late Sunday, the FDIC confirmed that all insured depositors (those at less than $250,000) would have access to their funds starting Monday morning.
Customers with uninsured deposits would be paid an advance dividend within the week, according to a news release. Banking activities, including online banking and other services, were also expected to resume Monday.
Janet Garufis, chairman and CEO of Montecito Bank & Trust, was quick to reassure Santa Barbara County residents that the nation’s banking system remains “in good hands.”
That said, “to the extent that (residents) banked with SVB, (the collapse) will be disruptive,” she said.
She expects SVB’s assets to quickly “be picked up, as the bank was very strong —that’s the great part.” While a percentage of those in California’s wine industry were bank clients, the company was “built on tech lending,” Garufis said.
Referring to the speed with which federal agencies assumed control of SVB on Friday, Garufis stressed that “the fact that they responded so quickly should inspire confidence in our community members.”
“We have seen a number of financial crashes in our country. It’s clear that the feds have tools and know how to use them.”
As of Dec. 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.
At the time of closing, the amount of deposits in excess of the insurance limits was undetermined.
Peter Rupert, UCSB professor of economics since 2007 and director of the
university’s Economic Forecast Project, called SVB an “outlier” because of its
tendency toward high-risk loans, and its structure.
SVB, the nation’s 17th largest bank, “bought bonds early on, and as the interest
rates continued to climb, it lost capitol,” he noted.
“How did they get there with all the checks and balances in place,” Rupert
pondered. “Did they skip through regulations somehow?”
Bank officials last Wednesday tried to raise $2.25 billion to shore up SVB’s
balance sheet, taking investors by surprise, according to a report by CNBC, but
their last-ditch efforts failed.
At that point came the bank run caused by venture capitalists “grabbing their
money and running,” Rupert told me on Monday.
“Many tech firms had substantial cash deposits, and most were not insured.” When
the feds stepped in Friday, they just “backstopped the whole thing,” he said.
Even if SVB isn’t purchased within days by a larger bank, the fact that it’s under
federal control should reassure members of the public, he said. “It’ll be fine even if
no one steps up immediately.”
In an email, Alison Laslett, CEO of Santa Barbara Vintners, praised SVB for its specialization in both the wine and tech industries.
“Silicon Valley Bank had more knowledge about the wine industry than any other bank. What Rob (McMillian) created was a division that analyzed, understood and served our industry in a way few other banks do or can,” she wrote.
“SVB understood the cyclical nature of wine and how to value the assets and products of a winery, so vintners and growers could get loans, and everyone could get information.”
“Silicon Valley Bank’s depth of knowledge is a huge loss to our industry,” Laslett continued. “Growers and vintners based (their) business decisions on SVB’s annual wine reports. I used them for grant metrics. We all counted on Silicon Valley Bank to talk to us about ourselves and help us operate.
“That will be incredibly hard to duplicate. It was 20 years of carefully curated knowledge, the gold standard in wine banking.”
Santa Maria resident Michael Brughelli, speaking as a longtime winemaker and viticulturist and not as the Central Coast vice president and market officer of the Novato-based Bank of Marin, called SVB “an invaluable organization — they did a great job for many of my friends and colleagues.”
In 2019, Brughelli launched his own label, Brughelli Wines, which focuses on pinot noir and chardonnay grown in the Santa Maria Valley. He is also consulting winemaker for Folded Hills Winery and the John Madden Co. in Colorado, and is the vineyard consultant for Diamond West Farming in Paso Robles.
He praised the employees at SVB: “The bank’s staff was wonderful, and I hope that they land on their feet with other opportunities.”
Echoing Laslett, Brughelli said that McMillan’s annual State of the Industry report “speaks to the talent of his staff. It was a great aggregator of information and tremendously helpful to those of us in the wine business.”
Like McMillan, Adam Lee, owner/winemaker at Clarice Wine Company and the founder with his former wife, Dianna Novy, of Siduri Wines (now owned by Jackson Family Wines), blogged about his experience as a longtime SVB client, putting to rest fears that he and other winemakers would also fail:
“I never thought it would come to this with Silicon Valley Bank. Ask me a week ago, and I would have said that SVB was one of the smartest and most stable financial institutions in the world. Little did I know that things would collapse within less than 48 hours.
“I watched the demise unfold and each time I was shocked. I pay attention to stocks, I keep a pulse on the wine industry, I have lunch meetings with friends in the financial realm. I know enough to understand that there’s another story here that needs to be told.
“Honestly, I am going to be fine. The FDIC is going to cover my money and really the process of opening another account at another institution isn’t difficult … except that it makes me feel like I am not being faithful to the bank that allowed me to become the winemaker that I am today.
“ … But for me, Silicon Valley Bank was and will always be what a bank should be for a small business. They were my partner and they helped me grow and become all that I could be. That’s what I wanted and needed out of bank. I know that I wouldn’t be where I am without what their employees did. And for that I will always be grateful,” Lee wrote.
On Sunday, federal regulators shut down New York-based Signature Bank. On Monday, stock share prices fell for several U.S. regional banks, including a 60% drop for First Republic, according to news reports.