SVB Financial to sell investment banking unit to management team

SVB Financial Group has reached a deal to sell its investment banking division to a group led by some of its own top bankers, including Jeffrey Leerink, as well as a hedge fund, the Baupost Group, the firms said on Sunday.

The buyers will pay $55mn in cash and pay off $26mn of SVB Financial Group’s debt, according to court papers filed in conjunction with the transaction. The buyers will also assume deferred banker compensation liabilities and allow SVB Financial Group to keep 5 per cent of the investment bank’s equity.

The unit, known as SVB Securities, has been on the block since Silicon Valley Bank failed earlier this year, when its aborted capital raise sent tremors through the banking industry and prompted regulators in the US to take over its deposit-taking operations.

The division will be renamed Leerink Partners, returning to a brand that was in existence four years ago. SVB Financial bought the healthcare-focused advisory business for $280mn in 2019 as it tried to bolster its growing investment banking franchise.

The takeover still requires sign-off from the court overseeing SVB Financial’s bankruptcy process. The buyout group will not acquire MoffettNathanson, a prominent sellside equity research firm that SVB Financial had acquired in 2021.

“The management team and I are excited to return to our heritage of owning and leading the premier healthcare investment bank and relaunching the business under the trusted Leerink Partners brand,” said Leerink, who will be chair and chief executive of the business.

SVB Financial Group, the parent holding company of Silicon Valley Bank, filed for bankruptcy in March after SVB had been taken over by the FDIC amid a $42bn run on deposits by customers. SVB Financial Group includes the investment bank as well as an asset management business.

Proceeds from asset sales, along with the holding company’s $2bn cash balance and value from tax benefits from operating losses, will be used to pay off bondholders as well as preferred stockholders. Together they have $7bn in claims.

Several prominent distressed-debt investors have accumulated positions in SVB Financial Group’s securities. The bankruptcy case has featured an ongoing fight between SVB and the FDIC over the group’s cash on deposit at the failed bank now controlled by the regulator.

Since SVB’s collapse and the bankruptcy of its holding company, rival firms have been seeking to recruit the California institution’s top employees. HSBC, which acquired SVB’s UK commercial banking unit, has separately hired 40 US-based SVB commercial bankers, a move that has prompted a lawsuit from First Citizens Bank, the North Carolina institution that acquired SVB from the FDIC. Boutique advisory firm Moelis & Co has also hired 11 software investment bankers from SVB Securities.

Josh Greenhill, a partner at Baupost, said the hedge fund had been a client of Leerink and SVB “for many years. We know first-hand that, when it comes to advisory, trading or research in the healthcare and biopharma industry, no one is better than Jeff”.

He added: “When we got the chance to back them, we jumped at it.”

The US financial system has been tested by the failure of SVB and several other banks, which followed the Federal Reserve’s decision to aggressively lift interest rates in 2022 as the central bank tried to bring down inflation. But the rapid pace of interest rate rises reduced the value of government bonds, debt that was seen by banks such as SVB as among the safest investments in the world.

The losses that banks suffered holding US Treasuries has prompted a broad rethink of the risks that interest rates pose to banks’ portfolios of securities.