SVB Financial Group has reached a deal to sell its investment banking unit to a group led by some of its top bankers including Jeffrey Leerink and a hedge fund, Baupost Group said on Sunday.
The buyer will pay $55 million in cash and repay $26 million in debt to SVB Financial Group, according to court documents filed with the deal. The buyer will also assume deferred banker compensation obligations and allow SVB Financial Group to hold a 5% stake in the investment bank.
The unit, called SVB Securities, has been stalled since the collapse of Silicon Valley Bank earlier this year, when its funding failure shook the banking industry and prompted U.S. regulators to take over its deposit operations.
The division will be renamed Leerink Partners, reverting to a brand that existed four years ago. SVB Financial Acquires Healthcare-Focused Advisory Business $280 million in 2019 as it tries to bolster its growing investment banking business.
The acquisition still needs approval from the court overseeing SVB Financial’s bankruptcy proceedings. The buyout group will not buy MoffettNathanson, the prominent sell-side equity research firm that SVB Financial acquired in 2021.
“The management team and I are excited to return to our legacy of owning and leading a premier healthcare investment bank and relaunch the business under the trusted Leerink Partners brand,” said Leerink, who will serve as Chairman and Chief Executive Officer of the business.
Silicon Valley Bank’s parent, SVB Financial Group, filed for bankruptcy in March amid a $42 billion run on customer deposits after SVB fell into FDIC administration. SVB Financial Group includes investment banking and asset management businesses.
Proceeds from the asset sale, along with the value of tax benefits from the holding company’s $2 billion cash balance and operating losses, will be used to repay debt to bondholders and preferred stockholders. Together they have claims of $7 billion.
Several prominent distressed debt investors have accumulated positions in SVB Financial Group securities. The bankruptcy case features an ongoing battle between SVB and the FDIC over the group’s cash deposits at failed banks that are now controlled by regulators.
Since the collapse of SVB and its holding company, rivals have sought to recruit senior staff from the California agency. HSBC bought SVB’s UK commercial banking unit and hired another 40 US-based SVB commercial bankers, a move that sparked a lawsuit from First Citizens Bank, the North Carolina institution that bought SVB from the FDIC. Boutique consultancy Moelis & Co also hired 11 software investment bankers from SVB Securities.
Josh Greenhill, a partner at Baupost, said the hedge fund “has been a client of Leerink and SVB for many years. We know first-hand that there is no one better than Jeff when it comes to consulting, trading or research in the healthcare and biopharma industries.”
“When we had the opportunity to support them, we jumped at it,” he added.
The U.S. financial system has already been tested by the failure of SVB and several other banks after the Federal Reserve decided to sharply raise interest rates in 2022 as the central bank tries to bring down inflation. But the rapid rise in interest rates has reduced the value of government bonds, which are considered by banks such as SVB to be among the safest investments in the world.
The losses suffered by banks on their holdings of U.S. Treasuries have prompted a broad rethinking of the risk interest rates pose to portfolios of bank securities.