Collapse of Silicon Valley Bank ‘Surprised’ Wine Industry

  • According to its website, Silicon Valley Bank has lent over $4 billion to wineries over the past 30 years.
  • The bank understands the industry’s unique needs, a winery owner told Insider.
  • But the bank’s “governance” and “internal strategies” always remained a mystery, he said.

For the past 20 years, Silicon Valley Bank has been a great banking partner for CADE Estate Winery, a Napa Valley-based company with four wineries, multiple vineyards and California Gov. Gavin Newsom as one of its investors, founder John Conover told Insider.

The bank seemed to understand the industry’s unique needs and challenges, offering soft loans, “seasonal crop credit lines” and “equipment loans and debt restructuring,” according to the SVB website.

When the bank collapsed after $42 billion in withdrawals this week, founders of tech startups and VCs weren’t the only cohorts shocked by SVB’s demise.

“I think it surprised everyone,” Conover said.

A large portion of SVB’s client base came from the startup ecosystem, but it’s also well established in the West Coast wine industry. In 1994, the bank created a wine division, founded by Executive Vice President Rob McMillan, who understood the fact that wineries don’t make money in their infancy.

“Everything is spent on things,” he told The Wall Street Journal in 2019. “We usually grant real estate loans with a certain development time because the vines do not generate any cash flow for three to five years. The next largest part is the inventory. Then there are purchases and miscellaneous: you may need to finance your French oak casks.”

In a 2013 interview with Wine Business, McMillan said the bank allows customers to lease casks, even though it’s a “rare” practice. McMillan did not immediately respond to a request for comment.

Since the division’s inception nearly three decades ago, SVB has awarded more than $4 billion to its wine-centric customers, according to the bank’s website.

It’s a relatively small portion — about 5% — of a $73.6 billion loan portfolio, according to the bank’s earnings report for the fourth quarter of 2022. But that five percent includes about 400 customers in the industry, according to a 2018 Wine Business report, and thousands of wineries are now locked out of their accounts, according to The San Francisco Chronicle.

During the Glass Fire that burned more than 67,000 acres in Napa County in 2020, Conover said the bank has been “more flexible” with loans, even as the winery had to slow production and temporarily focus on white wine, which accounts for about 15% made out the then usual production of CADE.

“They have been good partners for us,” he said. However, the bank’s overall “internal policies” and governance remained a mystery to many clients, including Conover.

On Wednesday, SVB Financial Group announced it was facing a liquidity crisis, prompting panic among customers and a massive $42 billion run on banks.

Conover said CADE has a “big loan” and mortgage with SVB on four wineries and five vineyards. And since Saturday the company’s checking account has been “locked”.

“I’ve never been through this before,” Conover said. The only similar crisis he could remember was during the 2008 recession.

Conover said he’ll still be able to do payroll for now and has since offered four banks to buy out CADE’s debt. Years of experience in an already volatile industry helped him not to panic in this situation, he said. “There is no need to panic at this point,” he said. “We’ll get through.”

Kendra Kawala, the co-founder of Bay Area-based Maker Wines, told The Chronicle that while she will be able to pay her employees, the bank’s closure makes her concerned about the industry’s overall financial health.

The Federal Deposit Insurance Corp. (FDIC) announced on Friday that it will create a new bank to protect insured depositors and will open no later than Monday. Customers with no more than $250,000 are protected by the FDIC, and the agency said it will pay an advance dividend to uninsured accounts over the next week. It’s unclear when, if ever, these accounts will be able to recover all of their funds.

“There’s just so much unknown right now,” Conover said. “We’ll find out more on Monday.”

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