SVB’s president reflects on the bank’s days post-collapse. Plus: AI is listening for investors, banker bonuses shrink, and more

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If there’s any entity that might want to put 2023 in the rearview mirror, it’s Silicon Valley Bank. The Santa Clara-based bank was shut down by regulators on March 10 after its investments lost value and a flood of depositors withdrawing money led to a historic bank run.

The industry found itself in a banking crisis when two other notable lenders collapsed shortly afterward. According to many, the aftermath appears to be largely over. That’s good news for SVB, which is now pivoting to focus on its future.

Now a division of First Citizens Bank, SVB has been busy this fall emphasizing to customers that it’s here to stay.

From the looks of recent industry conferences like HLTH , AfroTech and Money20/20 , it’s almost as if the Barbie marketing team has taken over. Floor-to-ceiling banner ads have made the bank’s presence known — assuring potential clients that they can count on SVB, “yes, SVB.”

The Finance Files caught up with SVB’s president of commercial banking, Marc Cadieux , to talk about the latest developments.

FF: You’ve been at SVB for three decades. What has the transition to now working within First Citizens Bank been like?

MC: If we had to go through the events of March, I am so grateful that we were acquired by First Citizens. What we have found is not only a financially stable place with deep resources, etc., but a real commitment to letting SVB be SVB and not breaking what was so special about the company.

It is completely different from anything First Citizens had previously, and I think that was part of the rationale for acquiring it. And so SVB has been left really to operate as it always had, prior to the events of March, and it's been really a hands-off, perhaps obviously, there's some oversight. Our new owners would love to keep an eye on what's going on there and how the business is coming back and support us in whatever ways we think we need to be supported. Largely, they’ve let SVB be SVB.

FF: Post-bank failure, was there discussion of changing SVB’s name?

MC: There wasn't really much debate about keeping the SVB brand alive and vibrant. And since then, we’ve seen First Citizens put some significant resources behind keeping that SVB brand alive and really making sure that everyone was aware that SVB is still in fact right here, open for business, doing all the things that we did before. I think that was born out of a recognition that really started immediately post-failure during the bridge bank phase, where the venture capital community by way of example was very vocal and ultimately signed a petition to “bring back SVB.” What we discovered was that in our interactions with clients, investors, the outside world, surprisingly perhaps, the brand still has a lot of brand value.

FF: Going through what SVB has over this past year, what would you say are some of the lessons you’ve walked away with?

MC: So, going through an experience like that, there's all sorts of takeaways and crisis management would probably be the perfect wrapper to put some of this in. It’s an interesting exercise when your company changes names twice over the course of a weekend as we did in that very first weekend. And then in connection with that, it reopened as the bridge bank the following Monday. And what's important about those name changes is all of your connections to the outside world are based on the name you have the prior week. When that name is new come Monday, you're in that awkward position of having to reestablish all of those outside connections in an awfully big hurry, by virtue of all the business that you're hoping to enable your clients to transact as reopened, and enable them to get their deposits. And frankly, two weeks later when we were acquired by First Citizens, we got to do it all over again.

FF: Since March, the Fed has blamed management and social media for SVB’s collapse. In your view, how would you describe what is to blame for what went wrong?

MC: I'm unable to comment on any of the events prior to the events of March for probably what are obvious reasons, and so I’m going to refrain from commenting on that and will instead focus on the enterprise we're a part of today, which, among other things, has very solid risk management, excellent capital and liquidity and, I think, makes for a much, much more stable platform than what we came to learn was the case with legacy SVB.

FF: After SVB collapsed, there were a lot of questions about trading among executives and their compensation. Have there been any changes there in policies or practices?

MC: So, I’m not going to comment on anything prior to March. I would say in the same breath, though, that to the best of my knowledge, things like trading policies, etc. I don't think by their nature they would have required change, for lack of a better way of saying it.

FF: Your chief product officer recently mentioned at a conference that SVB is winning back customers. What has been the bank’s strategy to accomplish this?

MC: Right from the start under First Citizens’ ownership, when it was clear that we had landed in a very strong and stable place, we immediately got on the phone, got in our cars and went and saw as many of our clients as we could — making them aware that we’re still here, that the future could be even brighter than it was before in terms of SVB’s ability to serve their needs. And at the same time, recognize that significant damage was done to trust. It would take a while to build it back.

Some clients unflinchingly stood by us. Others 100% departed. What’s encouraging is that we’ve really seen that swing as we have been at it longer — working on rebuilding that trust, demonstrating that we can still deliver in the form of making new loan commitments, as one important example.

The other thing that happened during that time, for those clients that did depart, they had an opportunity to try other solutions out there in the marketplace and I think to some degree discovered that SVB really does some things very, very well. So that too has helped put some wind in the sails in reactivating those clients that have departed.

FF: You mentioned trust was damaged with clients. What were your other biggest hurdles?

MC: I think that's the big one, just given how sudden and unexpected the events of March were. It was a shock to everyone, whether you were that unflinching “I'm going to stand by you” or at the other end of the spectrum. Really an event like that, I think, does take some time to get over. So that's the number one.

And then the second, I'd say the runner-up would be a byproduct of that, which is before the events of March, companies, buyers of all shapes and sizes were quite happy to leave 100% of their balances at SVB or with other financial institutions, and what the events of March I think underscored is that is risky to do. You could be separated from all your cash. Thankfully, that didn't turn out to be the case for very long at all. But if it had been, it would have been a very, very serious issue. So today, the byproduct of that is companies now have and probably will for the foreseeable future have two or more bank relationships. So, even where we are successful in reactivating, bringing clients back, we're not likely to see 100% of that come back in the near term.

FF: What about internally? How have you tried to keep morale up post-failure and post-layoffs ?

MC: What I've really come to appreciate through this exercise is the degree to which human beings crave clarity and certainty. And when it is suddenly stripped away, how destabilizing that is.

There are a number of my longtime dear friends and colleagues who elected in the first few weeks to depart for something that looks more certain, given all of the uncertainty immediately post-failure, and then in the very early days of having been acquired by First Citizens, which in the early days seemed so different from SVB. I have long wondered what might have been if those dear friends and colleagues had hung around just another week or two or three to see what I saw and continue to see and what I think all of the SVBers who are still here see today, which is, in no uncertain terms: This is still the very best platform hands down, full stop.

My sense today is that momentum and being in a very different place, continuing to put distance between us and the events of March, that’s really helping create that stickiness with the majority of employees who remain here. And I think it is also helping us attract new ones. It has been the case recently as we turn to hiring outside for some of our positions.

FF: Since being acquired by First Citizens, is SVB looking at new areas of business or pulling back in any areas?

MC: In a word, no. We are still banking all the same sectors, all the same stages of development, meaning everything from formation-stage, seed-stage startups — guys or gals with a great idea in their garage — all the way up to very, very large companies and everything in between.

Going back to opportunity, First Citizens added really robust businesses in areas like equipment leasing, and equipment leasing is something in the SVB history, we’d tried a couple different versions of that. It didn’t really work, historically speaking. Fast forward, we have right next door a very robust, well-developed version of that. Commercial finance is another area where they’ve got a really nice business there and some great products that we’ll be able to avail ourselves of. So, those are some coming attractions.

FF: You mentioned the significant resources that have been put into reinforcing that SVB is still around. Tell me about this “yes, svb” brand campaign.

MC: I think we intended it to be a bit tongue-in-cheek. At the time we were launching it, we were very much attempting to counter a perception, or at least I felt this way as I would see article after article that suggested SVB was no longer around and there was this big void to fill. And so part of our thinking was to change that perception out there that SVB was gone. We tested a number of different ones, and was admittedly a favorite amongst us and tested really well. I think folks have picked up on the tongue-in-cheek part. I saw it referred to as a bold campaign, and frankly those are the reactions I was hoping for.

It’s not what you said, it’s how you said it.

Executives have always known they have to be careful of what they say on earnings calls, but now thanks to AI, their speech patterns are being scrutinized more than ever before.

Artificial intelligence is now being used to pick apart those “um”s and “uh”s and…long pauses.

One professional on LinkedIn referred to the tech as a “corporate BS detector,” which is more or less what Speech Craft Analytics thinks investors will use it for.

Researchers have found that the messaging in earnings call transcripts has become increasingly positive in recent years, because executives know their words are being analyzed by AI through natural language processing.

Indeed, Speech Craft analyzed the speech patterns of biotech company Illumina’s CEO during his final earnings call this spring. “Francis deSouza did his best to stay positive,” the Financial Times reports , when asked about a contentious fight with activist investor Carl Icahn. But when examining the audio itself, there were shifts in his speech rate, pitch and volume, according to Speech Craft Analytics founder David Pope .

DeSouza resigned less than two months later.

Those are the types of clues that finance professionals are hoping to unpack with the use of AI-driven speech analytics.

Robeco, an $80 billion asset manager, began using audio cues from AI as part of its investment strategy earlier this year, the FT reports. Mike Chen, head of alternative alpha research at Robeco, told the FT he has found that returns at the firm have risen.

Speech Craft’s Pope tells The Finance Files that more investors are turning to AI to detect if there’s something more behind an executive’s words. (Use cases reach beyond finance. It’s also been tested by his firm on political speeches and legal depositions.)

Within finance, Pope says he examined recent earnings calls from several banks. “Even though they beat numbers for the most part, their stance was one of caution and they were nervous,” he says. In terms of what they were nervous about, he says it was anything from headcount reduction to concern over the interest rate gap between deposits and loans.

To Pope, the written transcript of an earnings call doesn’t tell the whole story. For example, when Jamie Dimon spoke about Basel III regulations during JPMorgan Chase’s latest earnings call, the CEO sounded “almost angry,” Pope says.

Sean Austin , CEO of Markets EQ, one of the early companies to perform AI-based research specifically for finance professionals, wrote on LinkedIn that “2024 will be a breakout year for speech analytics across Wall Street. We’re seeing the signs everyday, speaking with clients.”

Austin says investment dollars are pouring into this type of technology. Markets EQ’s client base is primarily quantitative hedge funds, representing almost $1 trillion in assets under management.

“By taking this data and producing volatility hedging models, a systematic firm can capture market movements more accurately,” he says. “I fully believe this is the next, and most important, wave of alternative data for Wall Street firms.”

Talk about a juicy deal. Investment firm General Atlantic announced Monday that it is acquiring a majority stake in Joe & The Juice. The juice, coffee and sandwich chain currently has 360 stores, up from 175 in 2016, when General Atlantic first invested in the concept. Revenue has also quadrupled during that period. Melis Kahya Akar, managing director and head of consumer for EMEA at General Atlantic, says “the global receptivity of the brand…reflects broader secular trends of convenience and healthy living.”

25%

Wall Street’s Christmas might lack some cheer: Bonuses for bankers are shrinking this year, according to a new report from compensation consultancy Johnson Associates. With dealmaking in a slump, investment pros handling M&A could see a pay drop as steep as 25%. Retail and commercial bankers could face pay cuts between 10% and 20%. Wealth managers are the only group on the list to see a pay bump, which is expected to be by about 5% on average. Forecasts for 2024 don’t look much better, due to high interest rates and geopolitical uncertainty.

Let’s travel back to the Gilded Age, shall we? On Nov. 21, 1834, businesswoman Hetty Green was born — a pioneer of value investing. She didn’t believe in buying and holding stock “just to hold it,” but rather selling at her desired price, which she did much of between 1865 and 1916. Known by some as the “Witch of Wall Street,” Green became the richest woman in the country in her day — amassing a fortune from her stock trades that would be worth about $2.5 billion today. Green told The New York Times in 1905: “I buy when things are low and nobody wants them. I keep them until they go up and people are anxious to buy.” That’s how she earned the moniker “the grandmother of value investing.”

Some AI experts predict that 2024 could be a breakout year for speech analytics being used by finance professionals.

Do you think that AI speech analytics tools will be helpful for investors, or is it more noise than signal?

Join the conversation in the comments below.

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