Mar 17, 2023
Apollo and Rivals Pushed Aside in Scrum to Own a Piece of SVB
(Bloomberg) -- After Silicon Valley Bank’s collapse, Apollo Global Management Inc. and its investment rivals began angling for ways to profit off the once-storied technology bank.
They circled SVB’s loan book. Apollo was also interested in buying the SVB business and staff dedicated to making loans, according to people with knowledge of the matter.
Washington had other ideas.
The Federal Deposit Insurance Corp.’s message was clear, according to people familiar with the matter: Only chartered banks could bid on the firm. Financial regulators wanted to steer the failed lender to another bank that could handle deposits — and they preferred a smaller suitor.
Private equity firms would be a buyer of last resort.
“There’s a deep concern from policymakers that some private equity bidders will cherry-pick the best assets and leave behind more problematic elements — exposing taxpayers and the deposit insurance fund to risk,” said Milan Dalal, managing partner of government advisory firm Tiger Hill Partners.
Private market giants have gobbled up everything from single-family housing to hospitals. But buying an entire bank would subject these investment firms to new regulations.
The FDIC doesn’t currently have a deadline for submitting bids, according to a person familiar with the matter. Apollo and the FDIC declined to comment.
Silicon Valley Bank fell into FDIC receivership last week after its customer base of venture capitalists and startups began pulling capital in one of history’s biggest bank runs. The bank’s collapse was one of three US bank failures in the span of a week, as rising interest rates created a liquidity crisis for the institutions.
Silicon Valley Bank’s book of loans, in particular, appealed to Apollo, Blackstone Inc. and several other alternative investment firms. That book consists mostly of short-term credit facilities to VC firms.
Blackstone declined to comment.
After the FDIC seized the bank, Apollo and Blackstone executives spent the weekend asking advisers and acquaintances in Washington how they could get in on the action, according to people with knowledge of the matter. They’d raised giant pools of capital and wanted to know whether the FDIC would let them put it to work, one person said.
Apollo staff studied SVB’s financials and scoured portfolios to determine the value of assets, another person said. They sensed an opportunity for the firm’s credit unit. Apollo wanted to understand the regulatory implications if it were to acquire the bank’s origination business, according to people with knowledge of the matter.
The credit arm has been building a business originating investment-grade debt — a key growth area for Apollo Chief Executive Officer Marc Rowan.
The FDIC could face political blowback if it hands lucrative assets to a private equity firm. Indeed, an SVB adviser warned some of those firms they were at a disadvantage to banks during the FDIC’s first attempt to auction the failed institution last weekend.
The regulator also aims to avoid any deal that would add heft to the biggest financial institutions. The FDIC told executives and lobbyists in recent days that it wants to keep SVB and its relationships with customers intact, one person said.
If no satisfactory buyer steps up, the biggest investment firms will be ready. This could echo the aftermath of the 2008 financial crisis, when private equity investors such as J. Christopher Flowers and Steven Mnuchin — who later became US Treasury secretary — swooped in to profit from distressed banks.
The FDIC found in a 2021 study that private capital helped stabilize the system when banks were stretched during the Great Recession. The regulator is continuing to speak with some of the investment firms, one person said.
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