First Citizens Bank‘s campaign to hold onto the equity-rich client base of Silicon Valley Bank seems to be paying off.
Around 1,500 companies that withdrew their deposits from SVB during the March bank run have returned at least a portion of their funds, said Peter Bristow, First Citizens president, on the company’s Q2 earnings call Thursday—even as rival banks have raced to capture SVB’s fleeing client base.
Since being taken over by First Citizens in March, SVB has managed to win back part of its client base, despite the reputational damage done during the crisis.
First Citizens’ deposits have stabilized in the $40 billion range, but Bristow acknowledged his clients’ “ongoing cash burn” in a challenging VC fundraising market. “The pace of VC is slowing considerably,” said Bristow, which is “reducing their need to use [First Citizens’] capital call facilities.”
And when will VC-backed clients’ funds return in full force? Not until late 2024 and 2025, Bristow says.
“Our bankers have reached out to a considerable number of clients over the past few months, and we are encouraged by the success we are seeing in reestablishing relationships with the clients which left in March,” Bristow said.
The 1,500 figure cited by First Citizens captures clients whose funds in SVB dipped below 10% of their deposit sum recorded March 8, prior to the bank run, and now have “some portion” back with SVB.
Some startup CFOs say they have stuck with First Citizens out of a sense of loyalty, others because they had taken out pre-existing lending facilities with SVB that required they uphold their relationship with SVB under its new leadership.
Major lenders including JP Morgan Chase, Stifel Bank and HSBC have raced to lodge a foothold in the VC market that SVB served, launching new innovation economy banking units and hiring scores of SVB bankers. JP Morgan Chase said July 11 that it hired John China, former head of SVB Capital, the lender’s venture capital arm, to co-run its innovation economy unit.
But First Citizens has fought against this exodus: The bank filed a lawsuit against HSBC in May, accusing it of executing a scheme to recruit SVB staffers and alleging that SVB executives shared trade secrets with their new employer.
SVB’s long tail is apparent, however, in a step-change decline in venture debt deals. First Citizens recorded a $7 billion reduction in loans in Q2, which Bristow attributed to slower activity overall in the global fund banking sector. US VC-backed companies took out 38% fewer venture debt deals in Q2 compared to the previous year, according to the Q2 2023 PitchBook-NVCA Venture Monitor.
Featured image by AaronP/Getty Images
