Silicon Valley Bank: Not only the tech industry, SVB's also known for its ‘wine banking’

“This is one of SVB’s wine vaults. How you can fail with all these liquid assets??” said a Twitter user in a tweet, along with a picture of a wine vault. The jibe was evident, but the context perhaps not. The subject of the jibe – Silicon Valley Bank (SVB) – known for its focus on start-ups, was also a prominent lender for the wine industry, and hence the pun. 

The image of the vault has also been shared by Summit Steel Works on its website, who called it a ‘custom wine closure’. It appeared to be the maker of the wine closure. 

SVB’S WINE CONNECTION

For the uninitiated, the connection between SVB and wines might seem far-fetched. But the lender is as clued in on the wine industry as it is with the start-up industry. SVB has lent over $4 billion to winery clients since 1994. A recent SEC filing indicates $1.15 billion outstanding loans to premium wine clients. 

Chateau Montelena, Westwood, CIRQ, Ram’s Gate and Darioush are some of the wine brands that have worked with SVB in the past, as per a report by Vinepair, a digital media company offering content about drinks culture.

Silicon Valley Bank’s wine division had around 35 professionals that specialise in wine. Around 400 industry clients banked with the lender’s wine division. 

The wine division of the SVB has published an annual report every year since 2001. In the 2023 report, it had stated that there has been a decline in wine consumption among Gen Z and young millennials. 

The wine industry too is cowering in fear after the collapse of the Silicon Valley Bank. While the depositors have been rescued by the US Federal Reserve System, concerns about further fallout still remain. 

The collapse of the SVB as “one of the most important lenders” is certain to have its effects on the wine industry. Winemaker Jasmine Hirsch, general manager of Hirsch Vineyards called it a huge disappointment. “They really understand the wine business,” Hirsch said. “The disappearance of this bank, as one of the most important lenders, is absolutely going to have an effect on the wine industry, especially in an environment where interest rates have gone up,” said Hirsch to Associated Press. 

According to US media reports, thousands of wineries were locked out of their accounts after Silicon Valley Bank was placed under receivership last week. 

SVB’S WINE DIVISION

Silicon Valley Bank’s wine division was created by executive vice president Rob McMillan, who wrote the business plan for the division in 1991. In an interview to the Wall Street Journal, McMillan had said that although the business plan was created before, the division itself was started in 1994 when he sanctioned his first loan.  In that interview he also noted that by this time he had realised that the boomer consumers were in love with the product, allowing him an avenue to pivot towards winery. 

Although during the early days bankers did not take this aspect of the business seriously, McMillan noted that the division hardly faced any losses in its 20-plus years of its existence.

In that same WSJ interview, McMillan said that there is no cash in the wine business and all of it is spent on 'stuff.' He highlighted that the business, in order to cater to the new kind of consumers of the 21st century, needs to evolve.

Because of such an intricate and long involvement with the wine industry, now that SVB has collapsed with the regulators taking over, the ripple effects in the industry is likely to be felt for a while.

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