Silicon Valley Bank failure shakes California wine community

When California’s Silicon Valley Bank failed and was taken over by the federal government on Friday, it was like a death in the family for the winegrowing community in Napa Valley, Sonoma County and much of the rest of Northern California.

Not only did the bank hold many of their personal and business accounts, it was also the source of loans to buy new vineyards and construct or expand wineries, a sponsor of many of their civic events and the authority on the health of the wine business with its annual reports on the industry’s performance and trends.

According to Silicon Valley Bank’s website, it had loaned over $4 billion in loans to the wine industry since 1994, with around $1.2 billion currently lent in outstanding loans, according to its  Q4 earnings announcement.

Its Wine Division, headquartered on First Street in Napa city and headed by its personable founder, Rob McMillan, was known worldwide by those who closely follow the industry, including journalists.

On Friday, McMillan like others at the bank and its patrons, wasn’t sure what will happen on Monday when the US Federal Deposit Insurance Corporation (FDIC) reopens the failed bank as the Deposit Insurance National Bank of Santa Clara (DINB) in that city south of San Francisco which spawned the Silicon Valley tech industry.

“There isn’t anything we can say at this point because we’re out of the loop,” McMillan responded Friday afternoon to an email message. “The FDIC owns us as of this morning.” Like the shock waves from one of the state’s frequent earthquakes, the ripples from the bank failures were immediately felt.

“Well, change seems to be in the air for us this year. Oakville Winegrowers has banked with Silicon Valley Bank since our inception in 1996,” wrote Joyce Stavert, executive director of the organization in a blast email to those who may be attending its annual Taste of Oakville event in April. “Due to [the bank’s failure], payment processing companies will not send deposits to any SVB bank account, so we will need some time to set up a new account to receive payments.” The message asked respondents to wait until Monday before submitting theirs.

Later, in response to my query, Stavert elaborated that “there is a definite wave of shock around here and a scramble to figure it out, but luckily we have lots of other good banks here in the valley. It will just take time to sort it all out.” In the meantime, she said, “I can’t even log into our account, and I am getting emails from various organizations saying they won’t transact with SVB.”

Late Sunday, the US government announced it would make good all deposits at the bank to help calm markets and concerns at other banks. In England, the HSBC announced that it would take over the UK holdings for SVB. As a normal rule with US banks, personal and business accounts with an FDIC-insured bank are covered up to $250,000, although there are exceptions. But until accounts are unfrozen, some businesses are worried about meeting payrolls and paying their own bills.

Those whose business loan applications with SVB have not been finalized may have a long wait for a decision, and those who seek loans at other regional banks may find higher rates and increased scrutiny due to the fact that SVB’s failure was in part from loaning funds to tech companies too readily.

The failure on Friday occurred shortly after the bank revealed its financial problems and its plan to seek addition funding, which caused a “run” on the bank – a rush by depositors to withdraw their funds – resulting in the FDIC stepping in and taking over. In such rare situations, the FDIC is permitted to do so without asking the bank’s agreement.

The suddenness of the bank’s death even surprised top employees. McMillan, an executive vice president at SVB, says he had even been thinking about buying more stock in SVB before receiving the news.