Tegan Passalacqua spent last weekend in what he’s been calling “anxiety purgatory.”
The acclaimed winemaker and owner of Sandlands in Lodi, California, learned on Friday that his financial institution, Silicon Valley Bank, had collapsed. He spent days weighing worst-case scenarios.
Up to $250,000 of his money was insured by the Federal Deposit Insurance Corporation (FDIC); however, Passalacqua had just released all of Sandlands’ winter wine—and had more than twice the insured amount in his account when the bank failed.
“I’m a growing business, so you have these sales periods when you bring in a good chunk of change and it goes away until the next sales period,” he says. “This is about the worst time for it to happen to me.”
Silicon Valley was the second-biggest bank collapse in U.S. history. It was a favorite of venture capital firms and tech startups, many of which pulled out vast sums of money shortly after the bank revealed its huge losses (the result of short-sighted investments paired with rising interest rates) on Wednesday.
While the wine division of the bank formerly known as Silicon Valley Bank represents just two to three percent of the institution’s assets, the roughly 400 wineries that maintained accounts with the institution are now trying to figure out how to best move forward and protect their financial futures.
On Monday morning, after about an hour and 20 minutes of trying to log onto his online banking portal, Passalacqua saw that all of his money—which will soon go toward farming, bottling and other winemaking expenses—was sitting in his account.
In a rare move, all depositors—even above the $250,000 limit—at Silicon Valley Bank were made whole under the systemic risk exception that was approved on Sunday by the FDIC, Department of the Treasury, Federal Reserve and President Biden.
“It’s rare to have a bank of this size fail and not find a suitor to purchase the assets and liabilities,” says Rob Eyler, Ph.D., a professor of Economics at Sonoma State University. “And it’s incredibly rare to have the President of the United States say, ‘We’re good here’ no matter what level of deposit you have.”
As part of the joint announcement on the systemic risk exception, the organizations assured that “No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers.”
The FDIC’s Deposit Insurance Fund, funded by quarterly fees assessed on FDIC-insured financial institutions and government bond interest, currently holds over $100 billion, which the treasury says is “fully sufficient” to cover SVB depositors.
While that exception to the $250,000 limit saved both large and small producers, like Passalacqua, whose company produces just 3,000 cases per year, many on social media were quick to criticize the move as an elite bailout package.
“BTW, who are typical ‘depositors’ @ #SVB? Wineries, solar, crypto firms. Not exactly mom-and-pop savers,” tweeted Nick DeIuliis, the CEO of natural gas company CNX Resources Corp. “Propped up for years by free money #Fed policy. So why are Main Street taxpayers suddenly bailing out the Cali elite? #bailout.”
That may be true for the bank’s tech clients but doesn’t seem to be the case for many of the wineries that hold SVB accounts. According to Rob McMillan, EVP and founder of Silicon Valley Bank Wine Division, the bank has lent out $1.4 billion in loans spread out amongst its roughly 400 wine clients. Most of those wineries are on the smaller side, says McMillan, producing under 5,000 cases per year.
So, while quite a few, like Passalacqua, may have had large sums in the bank from recent releases, most of the bank’s clients in the notoriously asset-heavy, cash-poor wine industry had far less than the amount insured by the FDIC in their accounts.
“I can’t tell you how many people had more than $250,000, but it wasn’t many,” says McMillan.
Adam Lee of Clarice Wine Company in Santa Lucia Highlands has been a long time customer of Silicon Valley Bank. When the news of its collapse came out Friday, he had $65,000 in his account. While he knew his deposits were covered, he was still stricken with worry about what Silicon Valley Bank’s closure would mean for his business. “It was a bit of panic on Friday as SVB went down,” he says. “I have a line of credit with SVB and I’m not certain what might happen to that if the bank sells.”
Lee’s $100,000 line of credit is just a drop in the bucket, but it’s a lifeline for his company that pays it down until harvest and then borrows it up again to produce his 650 cases per year.
Marcus Goodfellow of Goodfellow Family Cellars is in a somewhat similar but even more stressful boat.
On Monday, he was supposed to close on a property in Oregon’s Willamette Valley with a Silicon Valley Bank loan, after months of back-and-forth paperwork and negotiations. Needless to say, it didn’t happen. And, though the bankers in SVB’s wine division are still inching it forward (potentially closing it tomorrow), Goodfellow is also running through worst-case scenarios and backup plans.
He has already gone past the agreed upon closing date with the buyer, who has extended for a week. If the SVB loan doesn’t go through, Goodfellow could lose his earnest money along with the property if the buyer doesn’t allow him to seek out another bank. “I’d have to be honest and say big banks don’t do this type of stuff as much as Silicon Valley Bank,” he says. “Unquestionably, they have a great understanding of very specific and unique challenges of cash flow that wineries face.”
That’s why, in spite of all the stress from the crisis, many winemakers are more concerned about what will happen to the industry if SVB’s wine department completely shutters. The concern is both a short-term cash crunch and long-term loss of funding for an industry few banks service.
McMillan is fairly confident that won’t happen and they will “roll out of this.” He says he’s already been contacted by four banking businesses and another four to five non-banking companies including private equity firms that have expressed interest in buying up the wine division.
And Eyler believes that any pain in the wine industry that has resulted from SVB’s collapse should be relatively short-lived, aside from some potential cost increases specifically on the lending side. Though he thinks Silicon Valley Bank’s failure will “be a big deal in banking for some time to come” that will require careful consideration of whether this was a regulatory failure, not to mention how the Fed should address its interest rate-raising policy, he believes the wine industry could potentially benefit if more banks begin eyeing the market.
For now, Tim Mayopoulos, the newly appointed CEO of Silicon Valley Bridge Bank, sent out an email to clients urging them to help the institution rebuild its deposit base by leaving money in the bank and transferring back the deposits that have been pulled out over the past week.
Passalacqua is still trying to figure out how to best move his business forward after this weekend—and his unintentional intensive on business banking. In spite of the stress of the crisis, he and other winemakers are still reluctant to move their accounts away from Silicon Valley Bank due to its support of the wine industry and the staff who have helped grow his business. Even the tellers in the bank’s St. Helena office buy his wines via the mailing list, he says.
“They’re literally the people I’m working with on a day-to-day basis,” Passalacqua says. “They are the people who are supporting my brand.”