‘A very different kind of bank’: SVB’s culture in focus after collapse -Dlight News

'A very different kind of bank': SVB's culture in focus after collapse

When the Silicon Valley bank collapsed last week, most of its 8,500 staff were still working remotely. “Some people worked from Miami, some went to Las Vegas or a cabin in the woods and did the digital nomad thing,” said one former banker.

SVB’s full embrace of remote working was just one way in which the technology-focused lender separated itself from its peers — a top 20 US bank with a culture that more closely resembles that of Silicon Valley start-ups.

Long after Wall Street ordered its bankers back to the office, the California-based lender’s Chief Executive Greg Baker sometimes worked from Hawaii, President Mike Descheneaux moved to Florida, Chief Risk Officer Laura Izurita was based in a Washington suburb and General Bank, according to several people close to the bank. According to the consultant, Mike Zuckert worked mostly from New York.

Last month, the bank admitted in its annual report that it “could feel the negative effects of longer work-from-home arrangements”. Yet SVB was willing to take additional risks to foster a culture that valued “empathy” for customers and staff, and sometimes prioritized innovation and growth at the expense of risk management, according to interviews with current and former workers.

“This is a West Coast bank that operates and is at the center of innovation. . . Sympathetic and dependent on relationships,” said the former executive. “It’s not as cut-throat as Goldman Sachs.”

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

At the heart of SVB’s demise was a decision by management at the height of the pandemic – when the tech investment boom meant it was flooded with new deposits – to lock up half its assets in a $91bn portfolio of securities that made it vulnerable. Rising interest rates.

At the time, its share price valued it at a record $44bn, more akin to a growing tech company than a regional bank stock. However, the success made him complacent about the risks, insiders told the Financial Times.

SVB made the fateful decision to place a larger-than-average bet on long-dated securities in 2021 at the same time it adopted an operational structure that meant its executives were scattered across the U.S., even as it aggressively pursued expansion to become full. were following. – Service Bank.

“It’s hard to make challenging calls on Zoom. It makes it harder to challenge management,” said Nicholas Bloom, a professor at Stanford University who has studied remote working extensively. “Thoughts like hedging interest rate risk often come up over lunch or small meetings.”

To become the largest bank in the “innovation economy,” serving half of all venture-backed tech and life sciences companies in the U.S., SVB ventured where most banks wouldn’t. It lends money to nonprofit start-ups and helps entrepreneurs with household finances like large mortgages, car payments and school fees.

“SVB knew how to understand a business that was not profitable for three to five years,” said a former SVB executive. “These are companies that need a very different kind of bank.”

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

“Part of it is about client service, but part of it is sending a signal to their clients about who SVB is,” said one executive at a top venture capital firm.

In return for the risks it took, SVB in many cases required borrowers to bank with it and take equity warrants — the right to buy a percentage of its shares in the future — in their company. It reflected the spirit of a venture firm: betting that some of the companies it lent to would be so successful that the gains would offset the losses of all those that failed.

However, insiders complained that as the bank grew at breakneck speed, its top management was focusing more on social issues and became overly reliant on using expensive consultants to find new strategies, while they prioritized managing the bank’s expansion. should be provided and properly hedged against. Interest rate risk.

“It felt like a lot of decision makers relied on consultants to make decisions,” the former executive said, citing SVB’s ties to consulting giants like McKinsey. “It felt like a lot more engineering to get to [answers] People who have to find out for themselves.

SVB’s executives were also deeply committed to social justice, according to some of its former employees. “I almost felt like I was at work on a college campus,” said another former executive, who recalled weekly internal “TED talks” on social issues and classes on “how to make sure you’re not microaggressing.”

“It wasn’t the abrasive, roll-up-your-sleeves culture of Wall Street. . . Working at SVB felt more like working at a tech company than working at a bank,” said a former banker.

The SVB was also battling internal conflicts as a result of its rapid expansion. The bank has been on a growth spurt in recent years, nearly tripling between 2020 and 2023 through a series of acquisitions, including investment bank Leerink Partners, private bank Boston Private and equity research group MoffatNathanson.

She has been on a hiring spree, poaching bankers from firms such as Credit Suisse by offering attractive guarantees, often essentially 50 percent pay raises, people briefed on the matter said.

The expansion into full-service banking was intended to increase SVB’s competitive advantage as larger institutions such as JPMorgan entered its field of financing tech start-ups and began poaching its bankers.

“It was well designed from a strategy point of view,” said one former executive. “But it was still under construction.”

According to people involved in the acquisition, the problems arose when the bank was operating almost entirely remotely because of integrating businesses and pushing into new lines of work such as underwriting tech listings.

The unit faced a rush of departures shortly after the deal closed, after spending nearly $1bn to acquire Boston Pvt. One former private equity executive in Boston said, “The hardest way to get into the culture of the place” was to work completely remotely. “I realized that that command structure was as decentralized as possible.”

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

SVB has set the standard for supporting thousands of young companies in difficult times, and its collapse has left a gaping hole in the tech start-up ecosystem. But its success in dominating the niche start-up banking industry meant it was overexposed when investors were pulling back from tech groups and its executives didn’t fully consider the risks it faced.

“Things were so good at the bank for so long that there was seriousness,” said one former SVB executive.

Another former executive in SVB’s senior finance function added: “There was too much emphasis on things that weren’t important and not enough on what was.”

Additional reporting by Joshua Franklin and George Hammond

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