“A completely different type of bank”: Focus on the culture of the SVB after the collapse

When Silicon Valley Bank imploded last week, most of its 8,500 employees were still working from home. “Some people worked out of Miami, others moved to Las Vegas or a cabin in the woods and did the digital nomad thing,” said one former banker.

SVB’s total shift to remote work was just one way the tech-focused lender set itself apart from its peers — a top 20 US bank with a culture more akin to the Silicon Valley startups it mentored.

Long after Wall Street ordered its bankers back into the office, Greg Becker, the chief executive officer of the California-based lender, worked part-time from Hawaii, President Mike Descheneaux moved to Florida, Chief Risk Officer Laura Izurieta was in suburban Washington and General resident advisor Mike Zuckert worked primarily out of New York, according to several people close to the bank.

Last month, the bank acknowledged in its annual report that it “could experience adverse effects from a prolonged home working regime”. However, according to interviews with current and former employees, SVB was willing to take additional risks to foster a culture that valued “empathy” for customers and employees, and sometimes prioritized innovation and growth at the expense of risk management.

“This is a West Coast bank that operates at the heart of innovation and . . . empathetic and dependent on relationships,” said a former executive. “It’s not cutthroat like Goldman Sachs.”

Now, SVB’s governance, strategy and culture are in the spotlight as regulators investigate what led to the biggest US banking collapse since the 2008 financial crisis.

At the heart of SVB’s demise is a management decision at the height of the pandemic – when a tech investment boom caused it to be inundated with new deposits – to freeze half of its assets in a $91 billion portfolio of securities, which made it vulnerable to rising interest rates.

Its share price valued it at a record $44 billion at the time, resembling more of a burgeoning tech company than a regional bank stock. However, the success has made it complacent about the risks, insiders told the Financial Times.

SVB made the fatal decision in 2021 to overweight long-dated securities while adopting a work structure that meant its executives were scattered across the US, though it aggressively sought expansion to become a full-fledged corporate-service bank.

“It’s harder to make a challenging call over Zoom. It makes it harder to challenge management,” said Nicholas Bloom, a Stanford University professor who has researched remote work extensively. “Ideas like hedging interest rate risk often come up over lunch or in small meetings.”

To become the largest bank in the “innovation economy,” serving half of all venture-backed technology and life sciences companies in the US, SVB dared to do things most other banks wouldn’t. It lent money to unprofitable start-ups and helped entrepreneurs with household finances like high mortgages, car payments and school fees.

“SVB knew how to understand a company that doesn’t make money for three to five years,” said a former SVB executive. “These are companies that need a very different kind of bank.”

It became deeply involved in the venture community, entertaining entrepreneurs and venture capitalists at ski trips, baseball games, and private boxes at concerts. It lent billions of dollars to wineries and vineyards where it could network with customers and send wine to its customers’ parties.

“Part of it revolves around customer service, but part of it sends a signal to their clients about who SVB is,” said an executive at a leading venture capital firm.

In return for the risks taken, the SVB in many cases required borrowers to bank exclusively with it and took stock warrants – the right to purchase a percentage of their shares in the future – in their company. It reflected the spirit of a venture firm: betting that a few companies given credit would be so successful that the gains would offset the losses of all those who failed.

However, insiders complained that as the bank grew at breakneck speed, its top management became overly focused on social issues and over-reliant on the use of expensive consultants to explore new strategies, despite managing the bank’s expansion and adequate Hedging against this should have prioritized interest rate risk.

“It felt like a lot of decision-makers were relying on consultants to make decisions,” said a former executive, citing SVB’s relationships with consulting giants like McKinsey. “It felt like a lot of overengineering to get there [answers] people should have figured that out for themselves.”

According to several former employees, the SVB managers are also intensively committed to social justice. “It almost felt like I was working on a college campus,” said another former executive, who recalled weekly internal “TED talks” on social issues and classes on “how to make sure that one does not commit microaggression”.

“It wasn’t Wall Street’s aggressive, sleeve-rolling culture. . . Working at SVB felt more like working in a tech company than working in a bank,” said a former banker.

The SVB also struggled with internal conflicts due to its rapid expansion. The bank has been on a rapid growth trajectory in recent years, nearly tripling its workforce between 2020 and 2023 through a series of acquisitions including investment bank Leerink Partners, private bank Boston Private and equity research group MoffettNathanson.

It escalated into a hiring frenzy, with bankers being poached from companies like Credit Suisse by offering lucrative guarantees and often essentially locking in a 50 percent pay rise, people briefed on the matter said.

The expansion into full-service banking was aimed at increasing SVB’s competitive advantage as larger institutions such as JPMorgan encroached on their territory to fund tech startups and began poaching their bankers.

“From a strategic point of view, it was well designed,” said a former manager. “But it was still under construction.”

The integration of the companies and foray into new work areas such as underwriting tech listings, while the bank was working almost entirely remotely, caused problems, according to people involved in the acquisitions.

After spending nearly $1 billion to acquire Boston Private, the unit suffered a rush of exits shortly after the deal closed. Working entirely remotely was a “hard way to fit into a place’s culture,” said a former Boston Private executive. “I felt like it was about as decentralized a command structure as it could be.”

The SVB, through its receiver, the Federal Deposit Insurance Corporation, declined to comment.

SVB has set the standard for supporting thousands of young companies through tough times, and its collapse leaves a gaping hole in the tech startup ecosystem. But its success in dominating the niche start-up banking industry meant it was overexposed as investors pulled out of tech companies, and its executives hadn’t fully considered the risks it faced.

“Things had been going so well at the bank for so long that it was already dubious,” says a former SVB board member.

A second ex-manager in SVB’s chief finance function added: “There was an overemphasis on things that didn’t matter and too little on things that did matter.”

Additional reporting by Joshua Franklin and George Hammond

Video: Broken markets: the major threats to the financial system

https://www.ft.com/content/6e23a2fb-484e-418d-b309-bf558b3a6a17 “A completely different type of bank”: Focus on the culture of the SVB after the collapse

Brian Ashcraft

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