National Bank strikes deal to buy Silicon Valley Bank’s Canadian loan book

Open this photo in gallery:

National Bank of Canada NA-T has emerged as the winning bidder for failed technology financier Silicon Valley Bank’s Canadian branch in an effort by the country’s sixth-largest lender to expand its national presence in the competitive market for banking technology startups.

National Bank said Tuesday that it is acquiring SVB’s loan book in the technology, life sciences and global fund banking sectors, adding $1-billion in loan commitments, of which $325-million are outstanding.

The deal bolsters National Bank’s commercial banking business outside of its stronghold in Quebec by growing its lending base largely in Ontario and Western Canada.

SVB Canada’s loan book will be rolled into the bank’s technology and innovation banking group – which is part of the commercial banking unit – with the bulk of its startup borrowers based in southern Ontario, British Columbia and Alberta, according to Michael Denham, head of commercial and private banking at National Bank.

Grabbing more market share outside of Quebec has been a key part of the bank’s growth strategy as its rivals seek to grow by striking major deals in the United States and in Canada, including Royal Bank of Canada’s proposed takeover HSBC Bank Canada.

Regions outside of Quebec account for about one-quarter of National Bank’s commercial revenue, according to Mr. Denham, and the lender is focused on diving deeper into those markets.

“This is not a huge acquisition, but this will allow us to increase the relative size of our business outside of Quebec,” Mr. Denham said in a phone interview from SVB Canada’s office in Toronto.

“This gives us a leg up with respect to the clients that are currently with Silicon Valley Bank.”

The deal is expected to close in the coming weeks, pending approval by the Ontario Superior Court of Justice, which is overseeing the wind-up of SVB in Canada. National Bank said that it does not expect the transaction to have a material impact on its financial results.

National Bank did not disclose the financial terms of the deal.

California-based technology financier SVB collapsed in March, roiling financial markets and the already beleaguered tech sector. North Carolina-based First Citizens BancShares Inc. later acquired SVB’s U.S. operations, but the Canadian branch – which does not have a licence to take deposits – was left out of the transaction.

The purchase by National does not include a US$60-million debt facility for Toronto-based e-commerce merchant financier Clearco, which was carved out from the process last month by the liquidator, PricewaterhouseCoopers Inc., after rival bidders attributed a low value to the challenged company’s debt. Clearco backer Inovia Capital and two other investors bought that piece of the SVB business in July as part of a refinancing effort that the Montreal venture capital firm is spearheading to get Clearco onto surer footing.

PricewaterhouseCoopers did not respond to questions on the status of the wind-up process and whether there is still a portion of the loan portfolio that has yet to be sold.

Technology company valuations sunk last year as high interest rates and economic uncertainty weighed on the sector. The failure of SVB struck an additional blow by removing a key source of financing as many cash-strapped startups flounder.

Meanwhile, bank profits are being squeezed as high interest rates boost the cost of borrowing, dampening demand for loans. Some of Canada’s largest lenders have pointed to commercial banking divisions as a key source of growth in the coming years as other businesses slow, including residential lending.

Many of Canada’s biggest banks have dedicated innovation divisions to lend to technology startups, which typically don’t generate profits or have the types of assets traditional lenders require as collateral. National Bank has been expanding its innovation banking division across Canada for the past five years, opening offices in Ontario in 2017 and Western Canada in 2021.

“We’ve been growing outside of Quebec at a fast pace in the past four to five years, and this [acquisition] will continue and accelerate our growth,” National Bank head of technology and innovation banking Tuyen Vo told The Globe and Mail.

“In the economic context and the context of tech valuations being beaten up these days, this is a pretty bold move from National Bank at this juncture especially and is a testament to how strong and how committed we are to the entire ecosystem.”

Some of the lenders have already scooped up talent from SVB Canada to bolster their teams, including Canadian Imperial Bank of Commerce. Last month, Toronto-Dominion Bank – the only large lender without a stand-alone startup lending division – hired four technology bankers from SVB Canada in a bid to catch up to rivals and expand beyond its focus on later-stage technology companies.

Mr. Denham said that National Bank is also interested in adding SVB Canada employees to its team, particularly those with account management and underwriting skills.

“We have the capacity to handle these new clients and this new volume, but there are some strong people in Silicon Valley Bank that we hope to be in a position to have them move over and join us in the weeks ahead,” Mr. Denham said.