Canada’s banks are quietly picking up Silicon Valley Bank clients as U.S. sale process stalls

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Some of Canada’s largest banks are pro-actively and aggressively soliciting Silicon Valley Bank clients amid a standstill in the failed lender’s sale process.

U.S. regulators shut down California-based SVB on Friday after depositors started fleeing at a rapid pace, but hopes of a quick sale over the weekend did not pan out. With uncertainty brewing and private equity firms circling, at least three Canadian lenders are looking to pick off SVB clients.

Bank of Montreal BMO-T, for one, has circulated a marketing presentation, obtained by The Globe and Mail, that highlights its size and safety relative to U.S. banks, as well as a suite of BMO products geared toward venture capital firms and tech companies.

Royal Bank of Canada RY-T and Canadian Imperial Bank of Commerce CM-T, which both have large technology banking divisions, have also spread the word that they are available to help companies that had banked with SVB and are looking for a new home. However, both banks are doing so subtly, industry sources said, in an effort to not look too opportunistic. The Globe is not identifying the sources because they are not authorized to discuss such matters.

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But the banks’ interest is very clear. RBC, for one, is providing a preapproved special deposit package to companies affected by SVB’s closing and offering to take on some of the term loans offered to SVB clients. RBC is also extending capital call accounts to the failed bank’s venture capitalist clients that had used the accounts to fund investments.

Already some companies that banked with SVB, including Vancouver’s Dooly Inc., have moved their stateside deposits to RBC.

The private manoeuvring could make any sale of SVB more challenging, because any buyer of the bank will not want the best clients and loans to disappear before a deal is completed.

The newly-installed chief executive officer of SVB made a plea Tuesday on a video call with venture capitalists to keep their deposits with the bank. “I’m not asking you to do this as an act of charity,” said Tim Mayopoulos, named by the Federal Deposit Insurance Corp. to run SVB until it is sold, according to news site The Information. He added that “there is no safer place” for deposits.

Yet fleeing to other banks is tough to stop, and it is playing out across the United States. Clients at smaller lenders are seeking stability by moving money to large banks, including JPMorgan Chase & Co. JPM-N and Bank of America Corp. BAC-N, according to reports from the Financial Times on Tuesday.

As things stand, Canada’s banks do not appear to have much interest in buying SVB’s Canadian unit, which was only licensed in Canada to issue loans, not take deposits. Instead, the banks are more interested in picking off desirable clients, rather than acquiring large swaths of SVB’s loan book.

The tech sector in Canada seems to be comfortable with that approach. “I don’t know if it’s worth it for one of the banks to buy the brand unless they intend to so something with it and grow the portfolio of debt,” Chris Arsenault, a partner in Montreal venture capital firm Inovia Capital Inc., said in an interview. “It feels like they’re going after the books instead, one account after the other. They’re showing they’re hungry and going after the market.”

In many instances, venture capital funds are acting as intermediaries between SVB borrowers and Canadian banks. RBC “let us know that if any of our companies need solutions on venture debt or deposits or anything that we should think of them and they’d be able to move very quickly,” said Boris Wertz, managing partner of Vancouver-based Version One Ventures LLC, a client of RBC.

“I don’t think they want to be out there aggressively promoting it, but we certainly appreciated the heads up they’re open for business and ready to move quickly on these opportunities.” Mr. Wertz said he had introduced two portfolio companies with SVB exposure to RBC.

Canada’s banks are also being approached by existing SVB clients. More than $1-billion worth of business opportunities – deposits, loans and credit facilities – have knocked on the doors of Canadian banks, according to sources. The clients include some U.S. companies that see Canada’s large, stable banks as a safe haven during a period of heightened stress in the U.S. banking system.

The Canadian banks seem more interested in individual SVB loans and clients, rather than the whole bank, but The Globe has learned that RBC was one of several banks that looked at buying all of SVB last weekend, according to a source with knowledge of the bank’s interests. RBC held discussions and looked into SVB’s loan book, but ultimately couldn’t see a way to make the deal work, and talks did not advance, the source said.

The Globe is not identifying the source because they were not authorized to speak about confidential discussions. Reuters first reported RBC’s interest in a potential deal for SVB.

SVB operates in multiple countries and each has its own approach to banks closing. In Britain, regulators took over SVB’s domestic subsidiary on Friday, and by Monday, London-based HSBC Holdings PLC had finalized its deal to buy the subsidiary for £1. The tight turnaround left little time for extensive due diligence.

The process in Canada is moving at a slower pace. The Office of the Superintendent of Financial Institutions took temporary control of SVB’s Canadian operations Sunday in a move to protect creditors.

OSFI also said that it intends to take permanent control in a process that would formally launch the sale of SVB’s Canadian assets, but by Tuesday that had not started. There may not be a clear buyer, and the Canadian regulator might wait for a U.S. sale to conclude before proceeding.

Because SVB wasn’t authorized to take deposits in Canada, there wasn’t the urgent rush to protect client cash like there was in the U.S. and Britain.