Wineries take lessons from Silicon Valley Bank failure
Siduri Wines and Clarice Wine Co. founder Adam Lee was on a plane, midair over New Orleans earlier this month, when he heard the news that his bank of 26 years was in trouble.
But it wasn't anger or fear that gripped him. Yes, he was nervous. He had a $70,000 balance with Silicon Valley Bank, the leading bank for California wineries, which collapsed recently, creating the biggest bank failure since the Great Recession in 2008.
But the overwhelming feeling, Lee says, was sadness and even worry about losing the critical and wide-ranging support the bank had offered him and others in the industry. Working with a bank with a Santa Rosa branch and a dedicated wine division of nearly 30 years meant those bankers cared about Lee's day-to-day. They showed up, harvest after harvest, to sort grapes and feed the crew. His kids babysat wine division head Jed Taborski's kids.
“It was a relationship,” says Lee, who sold his Healdsburg winery, Siduri, to Jackson Family Wines in 2015 and started Clarice Wine Co. in Windsor in 2017. “I think that's what's going to be lost in this whole thing.”
On March 10, things had seemed even more dire. When the news broke, wine businesses big and small, from Napa Valley's Cade Estate Winery, which has four wineries, multiple vineyards and counts Gov. Gavin Newsom among its investors, to Maker, a woman-owned Bay Area canned wine company, were swept up in the unprecedented financial crisis, with many wineries scrambling to make payroll.
Now, it seems, the money won't be lost. Like many in his situation, Lee immediately established an account at another bank and linked the two so he could transfer his money “if anything went haywire.” On March 13, the Federal Deposit Insurance Corp. set up a replacement Silicon Valley bridge bank to cover accounts, even those above the $250,000 originally guaranteed by the government.
Now that the immediate danger is over, Lee and the other 400 or so Silicon Valley Bank wine clients are waiting to determine who will step in to manage their money with the kind of insider knowledge they have come to expect, what will happen to their other assets — like lines of credit in the
hundreds of thousands of dollars — and how this experience will shape the future finances of an iconic California industry still making up catastrophic losses from the pandemic and wildfires.
SVB'S ties to the wine industry ran deep. It lent $1.2 billion to wine producers
last year. Three of Newsom's wineries — Cade, Odette and Plumpjack — are listed as bank clients, The Intercept reported earlier this week.
Lee has $100,000 in a line of credit with Silicon Valley Bank, which he regularly uses to cover his harvest expenses, from grape and barrel purchases to custom crush and bottling services.
“Until this gets resolved, I'll be up at 5 most mornings watching the news to find out what's going to happen,” he says.
It's a sentiment shared by the majority of wineries, vineyard owners and other wine companies involved with Silicon Valley Bank, says Michael Haney, executive director of Sonoma County Vintners, which represents about 275 wineries. The association had its own assets in the bank through its foundation.
“At this point, everyone is catching their breath,” says Haney, a Sonoma vintner of 34 years. “But I think people will learn from this and apply the lessons to find solutions. That's what we did with the wildfires. Our wine community is very resilient.”
Most winery people will tell you they know more about grape growing than business. But Haney predicts they will look at ways to diversify their assets as a result of this experience.
“People aren't going to keep their money all in one place,” he says.
Farther south, the wineries of the Santa Cruz Mountains were largely unaffected by the fallout as the majority bank with other institutions. Like several of their counterparts in Napa and Sonoma, the few who were clients of Silicon Valley Bank declined to be interviewed. But their wine association spokesperson told the Bay Area News Group that those wineries, which are mostly familyowned, had other sources to cover expenditures during this period.
“What we are hoping is that another bank picks up (SVB'S) wine division, as their insights and industry reports have been extremely valuable to the industry,” says Keikilani Mckay, executive director of the Santa Cruz Mountains Winegrowers Association. “Many wineries and wine regions use their data to forecast and guide marketing and strategy.”
SVB'S wine division staff understood what growers and vintners need, Haney says. Sometimes just having that support is valuable in a vulnerable industry where sales trends, demographic preferences and winery visitations can shift dramatically from year to year.
“Since 2017, we've dealt with wildfires, flooding, smoke exposure and, of course, bank failures now,” he says. “We've learned lessons. Just like we learned to create defensive space during wildfires, this is a lesson we'll be able to take to the bank, so to speak.”