Jamie, Janet and Jay: inside a $30bn bank rescue

One scoop to start: Peter Thiel told the FT he had $50mn in Silicon Valley Bank when it went under, even after his venture fund warned portfolio companies that the tech-focused lender was at risk.

In today’s newsletter:

• The race to save First Republic

• SVB’s unconventional culture

• A BAT shareholder pitches a US listing

Wall Street rallies behind First Republic

When a storm hitting the US financial system risked spiralling into a crisis this week, the industry’s most senior banker convened competitors to stem a tide of fear.

Jamie Dimon, the JPMorgan Chase chief executive who had steered the bank through the 2008 financial crisis, was the industry architect of a $30bn rescue of First Republic, the FT reports.

On Thursday afternoon, 11 banks including JPMorgan injected $30bn of deposits into First Republic, in a manoeuvre aimed at shoring up the California-based lender’s liquidity and signalling to the market broad support for its survival.

Over a 48-hour sprint, Dimon built a consortium of lenders to pump cash into First Republic, uncovering a private market solution to a bank run that policymakers in Washington hope will help reverse a panic that felled two large US regional lenders.

The cash injection plan, hatched on Tuesday between Dimon and US Treasury secretary Janet Yellen, drew advice from Rodgin Cohen, the Sullivan & Cromwell lawyer who played a vital role in the rescue of the US financial system in 2008.

The plan began to take shape first in Washington. Yellen discussed the idea with Federal Reserve chair Jay Powell and other US banking regulators that day, before Dimon and a phalanx of bankers then began selling the strategy to the industry.

Most critical was the support of America’s four largest banks, JPMorgan, Bank of America, Citigroup and Well Fargo because of their giant deposit bases. Each will deposit $5bn for at least 120 days. Goldman Sachs and Morgan Stanley will deposit $2.5bn each, while five other banks will each deposit $1bn.

The rescue has parallels to the Panic of 1907, when J Pierpont Morgan locked a group of bank chieftains in his library until they could uncover a bank rescue plan after the failure of Knickerbocker Trust.

It’s also reminiscent of the 1998 rescue of Long Term Capital Management, an ultra leveraged hedge fund that had built swap exposures with banks across Wall Street and threatened to topple them. Fourteen banks injected $3.6bn into LTCM, then unwound it.

Dimon and Yellen’s effort culminated on Thursday morning with a broader call between bank CEOs and regulators. The Treasury secretary and Powell said the “show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system”.

Co-operation between banks may be to their benefit, versus more uncertain or potentially draconian ideas hatched in Washington. Having stepped to the table, the bank effort may also lower the ambiguity of using emergency powers if the situation worsens.

“The officials were supportive and wanted it to work, but . . . we are not getting anything special,” a banker briefed on the talks said. “We did not get a wink and a nod.”

On Sunday, the government offered the first firewall from the failure of Silicon Valley Bank by guaranteeing its deposits and opening some emergency facilities.

Firewall #2 drew two crisis-era players, Dimon and Cohen, into action.

Others, such as Apollo and Blackstone, which were active then, have also begun circling investments.

Meanwhile, the world hasn’t yet heard from Warren Buffett, the investor who played the single biggest hand during the 2008 tumult.

Inside SVB’s tech-courting culture

In the grips of the pandemic, as JPMorgan’s Dimon bemoaned remote working and a Hamptons run-in between junior Goldman bankers and their boss became a cautionary tale, SVB chief Greg Becker sometimes dialled into Zoom video calls from Hawaii.

The California lender’s embrace of the work-from-home movement lasted long after Wall Street ordered its bankers back to their desks, just one of many ways SVB did things differently than their industry peers.

“This is a west coast bank that operates at the heart of innovation and is . . . empathetic and dependent on relationships,” a former executive told DD’s Tabby Kinder and Antoine Gara. “It is not cut-throat like Goldman Sachs.”

Its laid-back culture wasn’t the only thing separating the tech-focused bank from larger rivals such as Goldman, as regulators, investors, and journalists including team DD would discover after it collapsed last week in the largest US bank failure since the 2008 financial crisis.

It’s important to point out here that SVB’s relaxed atmosphere is not the reason it imploded — it was a decision to lock up half of its assets in a $91bn portfolio of securities that made it vulnerable to rising interest rates and a subsequent bank run by its outsize number of business clients, as DD has explained.

But it does lend insight into the bank’s penchant for unconventionality. It placed a deep emphasis on wining and dining the tech community, hosting entrepreneurs at ski trips, sporting events, and private concerts. It lent billions of dollars to wineries and vineyards where it could network with clients and send wine to its customers’ parties.

An aggressive hiring binge, during which it poached bankers from competitors such as Credit Suisse with huge pay rises, was part of a plan to encroach on the territory of larger investment banks.

But SVB became unaware that it was riding a once in a lifetime wave of venture capital investments and would not be able to count on its customers when the times got thin.

“Things had been so good at the bank for so long that there was an unseriousness to it,” one former SVB executive said.

Little preparation during the boom times was made for an eventual market turn.

“There was an overemphasis on things that weren’t important and not enough on things that are,” said another.

A British American Tobacco shareholder pitches the American dream

British American Tobacco, the maker of Lucky Strike and Dunhill cigarettes, has been a stalwart of the London Stock Exchange since 1912.

But if top-five BAT shareholder GQG Partners gets its way, more than a century of bolstering the UK equities market could go up in smoke.

“The core ownership base [of BAT] has disappeared. It makes no sense for them to remain there,” Rajiv Jain, the founder of the $92bn US-based investment firm, told the FT.

(DD readers may remember him as the investor who poured $1.9bn into companies owned by Gautam Adani earlier this month.)

An exodus of UK companies to New York is gathering momentum, bankers told the FT several weeks ago. They have been drawn by the prospects of a larger investor base, and the higher valuations of their US rivals have become hard to ignore.

BAT is losing market share in the US as it scrambles to reduce its dependence on cigarettes in favour of smokeless tobacco. But a US listing could help narrow the valuation gap between rivals such as Philip Morris International and Altria as it tries to accelerate new products, Lex notes.

A growing list of companies are exploring a shift, including the likes of CRH and Flutter, underscoring the UK’s difficulty in attracting and retaining companies. And as Arm’s rebuff of the UK government’s entreaties showed, even blockbuster stock market listings where London would have once been a natural home are in doubt.

Said one government adviser: “If anyone was in any doubt that we are in the shit, they should be waking up now at least.”

Job moves

• The Federal Deposit Insurance Corporation has appointed former Fannie Mae boss Tim Mayopoulos to run Silicon Valley Bank’s bridge lender following the bank’s collapse.

• Credit Suisse’s global head of strategic shareholder advisory Chris Ludwig has left to join Barclays, Bloomberg reports.

• Private equity firm Clayton, Dubilier & Rice has appointed former Ball Corporation chief John Hayes as an operating adviser.

• Rio Tinto has appointed former BHP executive Dean Dalla Valle and Susan Lloyd-Hurwitz, former chief of Australian investor Mirvac Group, to its board.

Smart reads

CS vs SVB It’s easy to conflate the situations at Credit Suisse and Silicon Valley Bank. Alphaville explains why they’re different.

Predator to prey Before its clients fled for larger rivals, First Republic Bank was raiding the ranks of Wall Street’s biggest lenders, Bloomberg reports.

Time is ticking Former Goldman Sachs banker-turned TikTok boss Shou Zi Chew faces a steep challenge: winning over the Biden administration without a US sale, the Wall Street Journal reports.

News round-up

‘An untenable equity story’: what’s next for Credit Suisse? (FT + Lex)

Sam Bankman-Fried said to have taken $2.2bn from FTX entities (FT)

Robinhood backs down over Signature Bank bets (FT)

Pornhub owner sold to Canadian private equity firm (FT)

WeWork nears deal for capital injection and debt conversion (Bloomberg)

Indian group fights Wirecard fraud claim in London court (FT)

Leveraged buyouts: big funds flaunt their equity muscle (Lex)