What A Difference A Year Makes | Marc Cadieux (SVB) at the Newcomer Banking Summit

Thanks for having me. It's great to be here. Maybe just a level set before you go to your first question—for everyone's benefit, a couple things I cannot talk about today: events prior to March 10th, any Act of litigation, and SVB Financial Group is a separate story today from SVB Commercial, division of First Citizens Bank. So just wanted to blurt that out. That leaves plenty of course we can talk about. Thank you so much for being here.

I think I'll start by saying the last year has been a lot about trying to correct what I think of as a false narrative that SVB went away. SVB left a void, SVB isn't here to do all the things that we did before. The truth is we never left. We've been open for business, first as a bridge bank, then following the acquisition of First Citizens.

Yes, SVB—it is hard to have the word failure. It is technically true that SVB failed and that sticks with people. And back so quickly at it, I think, is the story we continue to get out. That false narrative we have been trying to correct ever since. And one of the reasons I'm so excited to be here today to talk about it. So you asked about the last year, and it's been again right back at it, doing all the same things we did for 40 years before. All the same lending at the same dollar amounts across all the different sectors and stages of development. We originated $3 billion in our Tech and Healthcare business alone in new loans in the last nine months of 2023, together with our new colleagues at First Citizens. One of so many data points that I think tell a story about being back and being back on that journey to rebuild the trust, doing all the things we did so well before.

So I think the best way to think about this is what happened after. Starting in April, and again I'll contain my comments to the fourth quarter of 2023—we're a public company and so have to call that out—but starting in April and through the end of last year, deposits just in the SVB division have remained—average deposits have remained stable. And that I think is probably the best evidence of all when you think about diminished venture investing, everyone has two banks now, many of our clients are still burning cash. That stable deposit story, we think, tells a story about what's been going on under the covers, which is—I think you mentioned—81% of our clients are still our clients, thousands have returned, and we expect in the fullness of time that that remaining 19% that's out there somewhere, we hope to bring them back as well.

So starting with all the things that are so different now—being part of First Citizens is a completely different financial picture. Very stable deposit base, very well capitalized, and then with the extra liquidity that came with the acquisition. That right there creates a completely different picture. The rest of it is about showing up consistently, being the best version of ourselves, and doing all those things that mattered so much to our clients before and matter even more in times like these when our innovation economy target market is continuing to go through some tough times. It's one more reason why it's great to be us—open for business and able to support our companies, our clients, when they need us the most.

No, I do not. I think this is another spin on intent and impact. I don't think there was any intention to bring down SVB. That was an unfortunate impact. And as I think we saw immediately thereafter, an outpouring of support for the venture community—in effect, this is not what we intended and we really want them back. And again, it's great to be back.

Yeah, so First Citizens makes sense for so many reasons that would perhaps be less obvious when you start at the appearances. You get beyond the superficial. What I've come to discover is my new colleagues and the folks that I share time with now on the executive leadership team are just like us in all the ways that matter the most. They care deeply about relationships, they care about long-term thinking, they care about being financially stable, but they're not averse to taking risks so long as it's well managed, well understood. So again, a lot more similarities than differences, and that support has been great. The second thing I would say is, this might be the first instance—generally speaking, when banks acquire other banks, they usually integrate them and the magic, the value that was there is often times lost. First Citizens has taken a completely different approach of kind of ring-fencing SVB, letting SVB be SVB, and ensuring that that value proposition is preserved and not broken in some way, shape, or form. So you asked about integration specifically—we've been very patient in our approach, in planning it out, and making sure that we make the most of all of what SVB brings to the broader First Citizens. We're really just now, as talked about in our fourth quarter earnings, just now getting to what I think of as operational integration that we expect to complete over the course of 2024. But be that as it may, at the back end of that, I don't think our clients are going to notice any difference at all. The SVB solutions platform is going to remain intact.

So one of the questions that we got, and I think in tracking social media, was 'who is First Citizens?' because they weren't as well known prior to buying. And so I love questions like this because it gives me the opportunity to talk about First Citizens. They've been around for 125 years, they've been amazingly successful, and it is now a dramatically different financial institution with the acquisition of SVB and the acquisition of CIT roughly a year or so before they acquired us.

I again continue to be open for business, doing all of the lending that we did before across all segments, including venture. I'm not going to speculate on the statistic, but a healthy chunk of that $3 billion of loan origination I talked about before is venture debt origination. And yes, our target markets are facing some headwinds and continue to, but brand new companies are getting funded as well. In fact, we've seen some we hope are green shoots in that space. And I would contend that any newly minted Series A company today is probably on average, pound-for-pound, a better-looking prospect. And we want to be lending to those all day long. And we are.

It is, generally speaking. At the early stage of the spectrum, and then you can get into different sectors and it might not be completely even across the board. And then you get into those mid and later stages. But that is I think one of the things that we bring to the table—that 30-plus years of venture lending through multiple cycles enables us to be smart but also be that patient, thoughtful lender. Nothing ever goes from great idea to great company—there are always setbacks along the way. And one of the ways SVB long distinguished itself and continues to is how we approach those situations, understanding that that is what happens and not freaking out when it does, and working with our clients. In an environment like this, this is one of the most important things we can do for our clients at this moment.

Oh sure, yeah. Unsurprisingly, as companies—we've all heard a lot about companies working to reduce their cash burn, and oftentimes debt service could be a significant chunk of that. So yeah, we've certainly had those conversations with a number of our clients who need some relief as they try to get from here to where they're going. And we welcome those conversations. Again, we've done this for 30 years—we're not going anywhere.

So banking starts—we'd love to meet them at formation stage, like right after you sign those formation documents with your lawyer. Come on down, we'd love to be your bank. We generally start lending post-Series A.

So we, like every other lender—we're relationship bankers and so we want to be the relationship bank. In connection with that, we like every other lender do require some percentage of total funds—not necessarily on-balance-sheet deposits, but total funds—to be with SVB. Either deposits on the balance sheet or managed off-balance-sheet by, say, SVB Asset Management. Following the events of last March, we actually took that requirement down to 50%, recognizing that everybody has two banks now. We're on a journey to rebuild trust, there's no rush. Again, we're with First Citizens, there's plenty of liquidity, plenty of support, so we can be patient on bringing back those deposits. And that has been the approach. We're seeing it get back to a place now where 80% is around the market standard, and so we've drifted back to that place too. The crisis is well behind us, and so we're back on that level playing field. But the key point is we're not requiring the deposits to be on balance sheet, and that is different from some of our competitors who really do need those deposits in order to originate loans.

Again, it all starts with First Citizens. We are—yes, we're the SVB division, but we are also First Citizens. One of the fun stats from the fourth quarter is all of deposits plus all of that extra liquidity support I mentioned covers uninsured deposits around 270%. So you could take every dollar out two times over and it's all still going to be fine. That puts us in, I think, a very rare place relative to other financial institutions. I'm not sure what the very largest could say about that, but when I think about a financial institution our size—roughly $220 billion or so in assets—that is a pretty good story to tell, we think. And it's been very well received by clients and investors.

So one of the other things SVB has long done in addition to all of the banking services, products, services, etc., is insights and connections. On the insight front, we just published our most recent state-of-the-market report a couple weeks ago where we talk about the environment and our predictions for the year ahead. So turning to that—yes, 2024, we think will be another difficult year, hopefully not as difficult as 2023. Hopefully things will start to turn. I mentioned green shoots earlier and that is an encouraging sign. My hope is that we are closer to the end than the beginning. Though I would preface this again by saying I can't tell the future perfectly, and we're certainly prepared for worse. If it's better, that's fine—obviously better sooner would be great. But in the meantime, it's a great time to be us because as long as this tougher weather lasts, we have an even greater opportunity to be there for our clients and to correct that false narrative I mentioned before. SVB is in the relationship business at the end of the day.

All of them. And I'm not exaggerating. So much has been written about all the folks that departed. What gets missed again in this narrative is all the folks who stayed. 80% of the folks that were there before are still there. We have the biggest group of market-facing bankers in the US, I expect—1,500 strong still. And that spans all of the teams, all the sectors, all the segments. It's all still there and we're still delivering across the board for our clients.

So I'll just do a quick title correction—I'm a division president.

So in the initial innings of the bridge bank, I had been the chief credit officer for the prior decade, and so my initial focus was entirely focused on restarting lending. In part so folks could draw those lines of credit they were depending on to make their payrolls. And then when we reopened the bank, that was my initial focus till about halfway through the second week. And as you might imagine, at that time a number of us were wearing multiple hats. And our bridge bank CEO at the time—a gentleman appointed by the FDIC—asked me to step in to be the interim head of the commercial bank, which I was of course happy to do. We were all doing anything and everything we could to make this turn out right. And then met my new colleagues at First Citizens that first Sunday night. While they did mention in that first meeting that I'm the chief credit officer, actually I'm really the president of the company. They elected to keep me in that interim role and ultimately made me the president in June.

I think the lending strategy of SVB was—the record speaks for itself. It was very successful. We had great credit quality, and we proved that out over a number of decades. And again, we still have all the talent to do that well, do it reliably, and so that continues on.

Yeah, so if I were to boil it down into two big overarching themes. The first would be everything we were doing in 2023—that false narrative, that rebuilding of trust, all of that happens if we continue to show up consistently, doing all the things that we did before that were so important to our target market. And so that is for sure goal number one—it matters a lot. But then I mentioned the operational integration. We're into this really interesting point post-acquisition where we're now starting to figure out what is the best, most thoughtful way to put the various pieces of the broader First Citizens Commercial Bank together in a way that enables us on the back end of operational integration to deliver an even broader, deeper, better value proposition. By virtue of being able, for example, to avail ourselves of the products and solutions on the CIT platform that would be of interest to our clients, and vice versa.

Yes, CIT was the acquisition First Citizens made roughly a year or so before they acquired us. And there are a number of complementary vertical business lines there that we think will be of great interest to our clients. So you could sum this up by saying my other big goal is to create an even better version of the SVB that was there before, by virtue of all that is right there with the broader First Citizens that we are now a part of.

Yeah, so broadly speaking, all the same sectors, stages of development. You mentioned venture—so our global fund banking business, venture firms and funds, private equity firms and funds, it's really the same. And again, everything from the very earliest stages all the way up to large corporates and everything in between. While there was roughly 20% of employees in my org, the commercial bank, that departed, 80% remained. So in some instances, clients have the exact same team serving them that they did before. In other instances, maybe some of those people are still there, they've met some new ones. But the wonderful thing about SVB is we had such a deep, deep bench of talent that our ability to backfill from our own resources was there from the beginning. And so we never really skipped a beat in terms of our ability to be back in front of our clients—maybe with a new banker, but back in front of our clients.

Yeah, so as noted, the run was unprecedented in its speed and scale, enabled by banking on your phone. And so much has been written about that. It remains to be seen in the fullness of time what, if any, regulation we'll see come from that. What I'll say there is—banking is a regulated industry. It should be. I've long said regulation makes us better as a business. And we want to be the very best version of ourselves. That's what the clients of the bank for the innovation economy should expect from us, and that's what we strive for every day.

I think that would probably upset the apple cart a little bit. Part of that trust and faith you mentioned before in the banking industry is based on 'I can get my deposits when I need them.' And so, personal opinion, I'd be surprised if that's where this went.

So yes, exactly, I'll repackage a little bit. There was another entity part of SVB that we called SVB Private. And so when First Citizens acquired SVB, they acquired the commercial bank part that I run as well as the private bank. While SVB Private has recently been rebranded as First Citizens Wealth—same people are there, the same solutions, the same focus on taking care of the individuals that occupy those first two important categories: the entrepreneurs and those innovation companies, and then the investors that support them. Those individuals working in both places still need those same bespoke product services, that same banker who speaks innovation economy and knows what the unique challenges of an entrepreneur or up-and-coming venture capitalist might be. And that is all still resident within First Citizens Wealth.

The same math—I would say we're still doing all the same things that made us successful before, including taking care of founders, investors, etc., within that part of the organization.