Uncertainty in the short term – and probably even more uncertainty after that
The Silicon Valley Bank failure on Friday sent shock waves through the wine industry – not just because a powerful bank collapsed, but because the bank played such a prominent role in the wine business, both as a lender and for its annual SVB wine report,
I’ve spend the past three days talking and emailing a couple of dozen people to try and to make sense of what happened; how a bank that was more or less healthy one week could be taken over by state and federal regulators the next. I wrote a trade piece you can find here. What’s below are my thoughts after a weekend of reporting:
• How painful to the wine industry? It depends on the size of the bank’s wine loan portfolio and what kind of shape it’s in. SVB’s demise was triggered by its tech business, and several people suggested it may not have been as important a wine lender as Bank of the West, Wells Fargo, or several farm-specialized lenders.
• That means we won’t know what the failure will do to wine country land values, as well as grape and bulk wine prices, until the FDIC sorts everything out. Lots of bad loans may force down land and grape prices, though land values have been remarkably resilient. Even the 2008 crisis didn’t send them slumping.
• Several people told me that SVB was well-known for its aggressive banking practices, and, as a state-chartered bank, didn’t have quite as strict regulations as a federally-chartered bank. In fact, it faced similar — though not as serious — troubles in 1992, during the S&L crisis, when banks folded around the country (it lost $2.2 million), and in 2008, when it got $235 million from the Treasury (though it paid all that back).
• Reynolds told me he hopes the wine industry report finds a new home, calling it perhaps the best in the wine business. Rob McMillan, the report’s author and the head of the wine division, wrote on his blog on Saturday that its future is problematic, given the cost of producing the report, the legal questions about who owns the data involved, and where he will be working next.
The other thing no one can predict: Whether SVB’s failure will have a ripple effect and more banks will close. I saw first-hand the damage caused by the S&L crisis in the late 1980s and early 1990s; a good friend was working for a bank that folded. No one should want that to happen to wine.