The SVB Financial Group and the Baupost Group announced on Sunday that they had reached an agreement to sell their investment banking division to the Baupost Group as well as to a group of top bankers led by Jeffrey Leerink.
According to court documents filed in connection with the transaction, the buyers will pay $55mn cash and pay $26mn off of SVB Financial Group’s debt. The buyers will also take on deferred banker’s compensation liabilities, and SVB Financial Group can keep 5% of its equity.
SVB Securities has been up for sale since Silicon Valley Bank collapsed in early this year. The bank’s aborted capital raising sent shockwaves through the industry, and regulators took over the deposit-taking operation.
The division is renamed Leerink Partners. This brand was used four years ago. SVB Financial purchased the healthcare-focused advisory company for 280mn dollars in 2019 to boost its growing investment banking business.
The court overseeing SVB Financial’s bankruptcy proceedings must still approve the takeover. The group that is buying out SVB Financial will not be acquiring MoffettNathanson. This prominent equity research firm was acquired by SVB Financial in 2021.
The management team and myself are thrilled to be returning to our heritage as owners and leaders of the premier healthcare investment banking and relaunching this business under the trusted Leerink Partners name,” said Leerink. He will also serve as chair and chief executive.
SVB Financial Group filed for bankruptcy on March 15, after the FDIC had taken over SVB following a run of $42bn by its customers. SVB Financial Group is made up of an investment bank and asset management.
Bondholders and preferred stockholders will receive their money from the proceeds of asset sales. The holding company, with its $2bn cash reserve, as well as tax benefits from operating loss, will also be paid. They have combined $7bn of claims.
SVB Financial Group securities have been acquired by several prominent distressed debt investors. The bankruptcy case featured a ongoing battle between SVB Financial Group and the FDIC regarding the cash that the group had deposited at the failed bank, now controlled by regulator.
Rival firms are trying to hire the top Californian employees since SVB collapsed and its holding company went bankrupt. HSBC has hired 40 US commercial bankers from SVB, despite having acquired SVB’s UK commercial banking division. This has prompted a suit from First Citizens Bank in North Carolina, the institution that purchased SVB from FDIC. Boutique advisory firm Moelis & Co also hired 11 software-investment bankers from SVB Securities.
Josh Greenhill, partner at Baupost said that the hedge fund has been a customer of Leerink and SVB for “many years”. Jeff is the best in healthcare and biopharma advisory, trading, or research. We know this first-hand.
He said: “When the opportunity came up to support them, we took it.”
SVB’s failure and that of several other banks has put the US financial system to the test. This was after the Federal Reserve decided to raise interest rates aggressively in 2022 to try to reduce inflation. The rapid rise in interest rates reduced the value government bond. This debt was viewed by banks like SVB as one of the safest investments around.
Interest rates are a major risk to the banks’ securities portfolios. The losses suffered by banks holding US Treasuries have prompted a rethinking of this issue.