After Silicon Valley Bank and Signature Bank collapsed this month, one veteran adviser was picked to head the clean-up crews. Todd Snyder, an expert on bank failures, ran the auctions that sold most of the regional lenders’ assets.
The sales on behalf of the Federal Deposit Insurance Corporation were arranged in a matter of weeks. But they also raised questions about whether winning bidders got the better of the US government banking regulator.
The government announced early on Monday that it had an agreement to sell most of SVB to First Citizens, a North Carolina-based lender. Much of Signature was sold to New York Community Bank after negotiations that took just seven days. The SVB deal was the second-biggest bank transaction by assets since the global financial crisis.
Snyder’s team at the investment bank Piper Sandler was at the centre of both deals, organising the two banks’ financial data for inspection, approaching possible bidders and considering transaction structures and valuations. Speed was critical: the longer the FDIC keeps a bank in receivership, the more the bank failure ends up costing the bank-funded deposit insurance scheme.
Combined, the two deals that resulted will cost the insurance fund more than $20bn, even though they include options that will give the agency the ability to recoup as much as $800mn from the acquiring banks based on the market reaction to the deals, which has so far been positive.
One reason Snyder’s team landed the assignment is that they wrote the playbook. Several years ago Snyder and his colleagues were hired to advise the FDIC on how new rules and powers conferred by the Dodd-Frank financial reform law should change the way it reacts to a large bank failure. Piper Sandler also has expertise in advising regional banks that resembled SVB of California and Signature of New York.
Snyder, 60, has spent a career around businesses that were in trouble. He cut his teeth as a lawyer in the 1980s at Weil, Gotshal and Manges, a law firm that had pioneered corporate bankruptcy transactions. After a stint at KPMG he made his name as an adviser at Rothschild, rising to lead a restructuring practice that handled distressed situations.
“Todd has great experience in situations at the intersection of finance, politics and regulated industries,” said James Sprayregen, the founder of the restructuring practice at law firm Kirkland & Ellis, who has known Snyder for three decades.
Snyder was in the middle of smoking Thanksgiving turkeys in November 2008 when President George W Bush’s administration called to ask his team to lead an effort to save the nation’s teetering car industry. Snyder, who loves to cook, took off his apron and got to work.
He soon found himself on a plane to Germany and eventually face to face with then-chancellor Angela Merkel negotiating, on behalf of the US government, the future of General Motors’ operations in the European country. An eventual $80bn US bailout for the auto industry would cost taxpayers more than $10bn, but saved GM and Chrysler along with dozens of auto part suppliers that dot the US Midwest.
“Todd is very hard to fluster,” said Ron Bloom, a former “auto tsar” in the administration of former president Barack Obama. “He has seen it all.”
After leaving Rothschild in 2017, Snyder hung out his own shingle, forming TRS Advisors. He then sold it to Piper Sandler in 2020 for $24mn in cash plus $15mn in restricted stock. A $7mn bonus was also offered to top TRS employees if a revenue target was hit by the end of 2023, according to securities filings.
In the SVB deal, Snyder encountered cautious bidders and a seller, ultimately the Biden administration, that was both picky and unwilling to provide a bailout. The FDIC at first said it would only entertain bidders willing to buy SVB and all of its assets in a single deal.
Over time Snyder was able to bring bidders and the FDIC together to compromise on alternative deal structures.
The first round of the auction, conducted the weekend after SVB’s failure on March 10, drew just two bids, FDIC chair Martin Gruenberg said this week. Neither was accepted.
Snyder recruited more of his bankers to work the phones and run numbers with potential bidders. After a week of tepid interest the FDIC relented, indicating it might be willing to share any future losses with a winning bidder.
But the real turning point came the second weekend, when on March 19 Snyder and his team were able to secure a deal for Signature, the other failed bank. Shares of acquirer New York Community Bank soared on the news. All of a sudden, there was interest for SVB as well. Five days later, Snyder and his team presented the FDIC with 27 bids from 18 groups to buy all or parts of SVB.
In the end, First Citizens agreed to buy most of SVB’s business, acquiring its $72bn loan portfolio at a roughly 20 per cent discount. First Citizens will also receive $35bn in cash from the FDIC.
Billions have been added to the market capitalisations of both NYCB and First Citizens since the deals were announced, suggesting investors believe they negotiated favourable terms with the government.
Republican lawmakers on Tuesday grilled Gruenberg about the bidding process for SVB. Senator Bill Hagerty of Tennessee claimed that prospective bidders had been “waved off”, adding: “The FDIC failed to do its job.”
Some experts said sale terms that might seem generous could help attract bidders and allow the combined institution to flourish, an aim of regulators.
“When do taxpayers step in to make SVB and Signature more digestible? At what point do you just let what is left die?” said Jared Ellias, a bankruptcy law professor at Harvard Law School. “There is no answer to these questions in the normal restructuring playbook.”
Additional reporting by Colby Smith in Washington
Source: Financial Times