Where will SVB's assets end up?

SVB is everywhere, but also … nowhere?

Like the rest of you, I've been immersed in the unfolding collapse of Silicon Valley Bank.

After a frantic 24 hours of calls with investors and founders, and a deep and unredeemable spiral down several VC Twitter rabbit holes, my team and I have surfaced with an outline of the potential next steps for SVB's business.

The assets of now-defunct Silicon Valley Bank are up for grabs, specifically its roughly $73 billion loan book, around 20% of which is venture debt. This situation could move in several directions.

One road could lead to a liquidation process. If no buyer steps in, the assets will go to a market auction. In this process, SVB's assets and liabilities would be compared. If its liabilities outweigh its assets, the bank is insolvent, and the 93% of SVB's depositors who are uninsured will take a hit.

Or the FDIC could find a buyer through a bidding process. The main precedent for such a bank failure is Washington Mutual's collapse during the global financial crisis. In 2008, regulators seized Washington Mutual and sold it to JP Morgan for $1.9 billion following a series of rating agency downgrades and a plummeting stock price.

Most likely, SVB's buyer would also be a big bank as its massive private loan portfolio is too large for a non-bank venture lender to absorb.

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SVB Financial CEO Greg Becker said in a video to employees Friday that he was working with the FDIC to find a buyer for all or part of the bank. 

"My goal at the end of the day is to figure out how to preserve a small portion of the franchise value that we have spent so much time building, and hopefully find the right partner at the end of the day that the FDIC can work with to have this institution continue in some form or fashion," Becker said.

As the largest lender to VC firms and founders, SVB's assets are attractive for banks hoping to gain market share in venture and venture debt, said Zack Ellison, CIO of Applied Real Intelligence, a venture debt firm.

Ellison said he's placing his bets on JP Morgan, which has reportedly been poaching SVB bankers since 2014.

"I think JP Morgan is probably the most likely buyer because they understand venture debt and they would love to have the foothold into the technology and innovation ecosystem in Silicon Valley that SVB certainly has," Ellison said.

If this happens, SVB will likely be bought for pennies on the dollar and current shareholders will be wiped out. When all is said and done, the lender would become a part of whatever bank absorbs it.

The acquirer would have two options for SVB's portfolio: It could either buy it whole or it could purchase it piecemeal. The depositors who are looking to get their money back would likely prefer the first option because this would simply move their capital into new bank accounts under the new owner immediately after the acquisition.

If the buyer only purchases select portions of the portfolio, uninsured depositors may have to wait longer for their funds. Either way, next week, the FDIC will pay uninsured depositors an advance and continue to make dividend payments as it sells SVB's assets—whatever the sale looks like.

Featured image by Jenna O'Malley/PitchBook News

This article originally appeared on PitchBook News