Rating Action: Moody's affirms SVB Financial's ratings with a stable outlook following acquisition announcement
Global Credit Research - 05 Jan 2021
New York, January 05, 2021 -- Moody's Investors Service (Moody's) has affirmed the long- and short-term ratings and assessments of SVB Financial Group (SVB, long-term senior unsecured A3) and of its lead bank, Silicon Valley Bank (long-term deposits Aa3), including its a2 standalone Baseline Credit Assessment (BCA), following SVB's announcement that it has agreed to acquire Boston Private Financial Holdings, Inc. (Boston Private). The rating outlook remains stable.
..Issuer: Silicon Valley Bank
.... Baseline Credit Assessment, Affirmed a2
.... Adjusted Baseline Credit Assessment, Affirmed a2
.... Long-term issuer rating, Affirmed A3, Stable
.... Long-term deposit rating, Affirmed Aa3, Stable
.... Short-term deposit rating, Affirmed P-1
.... Long-term Counterparty Risk Assessment, Affirmed A1(cr)
.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)
.... Long-term Counterparty Risk Rating, Affirmed A2
.... Short-term Counterparty Risk Rating, Affirmed P-1
Issuer: SVB Financial Group
.... Long-term issuer rating, Affirmed A3, Stable
.... Senior unsecured debt rating, Affirmed A3, Stable
.... Senior Unsecured Shelf, Affirmed (P)A3
.... Subordinate Shelf, Affirmed (P)A3
.... Pref. Stock Non-cumulative Stock, Affirmed Baa2(hyb)
.... Pref. Stock Non-cumulative Shelf, Affirmed (P)Baa2
..Outlook Actions: Issuer: Silicon Valley Bank .... Outlook, Remains Stable Issuer: SVB Financial Group .... Outlook, Remains Stable RATINGS RATIONALE
The rating action follows SVB's announcement that it has agreed to acquire Boston Private in an 80% stock, 20% cash transaction. Boston Private, with $9.4 billion in assets, had $7.2 billion of loans and $16.3 billion of assets under management as of 30 September 2020. The acquisition, expected to close in mid-2021, will add private banking and wealth management capabilities to SVB's existing product suite.
Moody's stated that the affirmation of SVB's ratings reflects its view that the transaction will not materially change SVB's comparatively strong credit profile, which is positioned one notch above the US bank median. The transaction is relatively small at 10% of SVB's total assets as of 30 September 2020. Even so, the acquisition will modestly reduce SVB's capital and liquidity ratios and does bring modest operational and integration risks.
Boston Private's loan portfolio will be 16% of the combined loan portfolio based on 30 September 2020 data. Notably, Boston Private's loan portfolio has a commercial real estate (CRE) concentration with CRE loans accounting for a high 3.0x its Moody's-calculated tangible common equity (Moody's TCE) base at 30 September 2020. This concentration level is among the highest of Moody's-rated banks and a concern as the economic fallout from the coronavirus pandemic is not yet fully known. However, because of its smaller size and SVB's small CRE portfolio, we expect SVB's CRE portfolio to remain small following the acquisition at an estimated 0.4x its pro forma Moody's TCE. Furthermore, SVB's due diligence included a detailed loan file review of 75% of Boston Private's commercial commitments and the acquisition carries a 2.25% credit mark.
SVB's specialized business model focuses on key sectors including venture capital, private equity, technology and life science. As such, its loan portfolio lacks diversification with significant industry concentration to venture capital, private equity, technology and life science, which together accounted for 81% of its total loans as of 30 September 2020. Boston Private will bring a sizeable amount of assets under management to SVB's existing, but small, wealth management business. In addition, the acquisition will augment product offerings and lending capabilities in SVB's private bank and wealth management business which over time could drive increased revenue and loan diversification by asset class and geography, benefiting SVB's credit profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Meaningfully slower loan growth and reduced sector and borrower concentrations could lead to upward rating pressure provided that SVB's strong financial fundamentals are maintained.
SVB's BCA and ratings could be downgraded if missteps in the integration of Boston Private occur or if there was a sustained decline in its capitalization or liquidity position inconsistent with Moody's current expectations. Evidence of weakening in underwriting standards would also add downward rating pressure.
The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Megan Fox Asst Vice President - Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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