Blackstone’s SVB Deal That Got Away Shows Private Equity Sidelined in Crisis

(Bloomberg) — Silicon Valley Bank had just collapsed and Blackstone Inc.’s dealmakers saw an opportunity. One problem: The firm didn’t want to look like a vulture.

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In a deal that ultimately didn’t go through, the world’s largest alternative asset manager agreed to provide financial support for Valley National Bancorp’s bid for SVB in March. Rather than vying for SVB assets outright, Blackstone backed a regional bank — the type of buyer favored by watchdogs.

The partnership, which hasn’t been reported before, followed a debate among senior Blackstone executives who fretted over public perceptions and regulatory burdens, according to people with knowledge of the situation.

The deliberations offer a snapshot of how tricky it can be for giant, cash-laden investment firms to scoop up assets coming onto the market amid this year’s banking crisis. The Federal Deposit Insurance Corp., which seized SVB on March 10, typically prefers selling failed banks to stronger peers and views private equity firms only as a last resort.

Spokespeople for Blackstone and the FDIC, which oversaw SVB’s auction, declined to comment.

In Blackstone’s upper echelons, bosses worried that picking off assets in an auction watched by the American public could cement the firm’s image as a predator, the people said, asking not to be named discussing confidential deliberations. Blackstone also wanted to avoid regulatory burdens that would accompany solo ownership of a bank.

And at least one other issue factored into its calculus: SVB had specialized in venture-capital and startup lending, but Blackstone hadn’t focused on those loans that much before, some of the people said.

In the end, First Citizens BancShares Inc. won the auction to buy most of SVB late last month.

Angling for Openings

A number of big investment firms — including Apollo Global Management and Carlyle Group — have angled for openings in recent weeks as regional banks have come under pressure, facing waves of withdrawals that have forced them to sell low-interest assets at losses.

Blackstone and many of its rivals are flush with cash to invest from pensions, endowments and insurers.

Read more: Apollo and Rivals pushed aside in scrum to own piece of SVB

When SVB came up for sale, authorities hoped to steer the failed lender to another — ideally, not-too-large — bank ready to take over customer deposits. The agency initially allowed only chartered banks to bid.

Private equity firms and other alternative asset managers typically prefer to zero in on the most desirable pieces of a defunct company. In SVB’s case, that meant its loan book. But the FDIC generally resists breaking up failed banks into pieces, such as deposit-taking operations and loans. That helps to preserve ties to customers and the bank’s role in a community.

As markets gyrated in the week after SVB’s collapse, some private equity firms and their lobbyists suggested regulators shouldn’t be too choosy about where they get capital in an emergency.

“All sources of capital should be welcomed to help support the banking system and employers on main streets across America,” said Drew Maloney, chief executive officer of the American Investment Council, which advocates on behalf of private equity firms.

The FDIC later extended the deadline by days, letting “nonbank partners,” such as private equity firms, get involved in the bidding. Still, Valley National’s bid with Blackstone was passed over. A spokesperson for New Jersey-based Valley National didn’t respond to a request for comment.

The FDIC made the decision that it saw as the least costly to its insurance fund, as required by law, a person familiar with its thinking said.

The government continues to sell other assets from SVB and another failed lender. To facilitate that process, it hired another New York investing giant, BlackRock Inc.

Read more: BlackRock to sell $114 billion of failed banks’ securities

–With assistance from Matthew Monks.