US bank runs are an acquisition opportunity for private wealth managers

The latest US banking crisis has arrived, with two US banks and counting taken over by The Federal Deposit Insurance Corporation (FDIC) and another entering voluntary liquidation. However, the limited scope of the US bank runs at the time of writing suggests this will be less damaging than past crises. In addition, it will open up some assets that many international private wealth managers will definitely want to consider bidding for. Andrew Haslip writes

So far, the 2023 US bank runs are confined to banks that are tied to the technology sector and, in particular, the savaged cryptocurrency markets.  

On March 9, 2023, Silvergate Bank – which is heavily enmeshed in the crypto space – voluntarily liquidated its operations, while Silicon Valley Bank (a leading bank for the technology sector) was taken over by the FDIC the next day. New York-based Signature Bank’s FDIC takeover was announced on March 12, with the FDIC citing systemic risk – most likely due to its role as a big lender in the digital assets space. On the same day, First Republic Bank avoided either fate by lining up $70bn in potential funding from the Federal Reserve, Federal Home Loan Banks, and JPMorgan Chase.

As measured by assets, Silicon Valley Bank and Signature Bank are the second- and third-largest bank failures in US history. However, the impact on mainstream retail banking in the US will be relatively minor. The focus of all three banks was largely outside of the retail banking space. And while each of these banks had critical flaws that led to their woes, both Silicon Valley Bank and Signature Bank will be attractive targets for private banks.

While very active in lending to the digital asset sector and an operator of real-time digital blockchain-based payment platform Signet, Signature Bank has 40 private client offices located in New York City, as well as locations in Connecticut, California, Nevada, and North Carolina. This gives it a strong presence in attractive regional markets. While crypto-focused firms are hardly sought after at present, the bank does have a book of relationships with many crypto firms that could prove attractive after the Crypto Winter ends.

While larger in terms of footprint, Silicon Valley Bank was similarly concentrated in its client base, being the leading bank for tech startups and the broader technology sector in the US. It also has a private bank full of tech executives along with business banking relationships with a wide cross-section of the technology industry. Such relationships will prove valuable once the tech recession ends.

Any private wealth manager – particularly those that have substantial commercial banking arms – should be interested in acquiring these relationships for the long-term potential they offer. Given the concentrated nature of their businesses was a key element of the respective banks’ failures, international private wealth managers keen to grow their US business will be most attracted to Silvergate and Silicon Valley Bank – and most able to bid when the assets come up for sale.