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Why a California tech bank failure is worrying the Washington wine industry

By Wendy Culverwell, Tri-City Herald
Published: March 14, 2023, 7:46am

KENNEWICK — The March 10 failure of Silicon Valley Bank shocked the Washington wine industry, which relies on research by the bank’s well-regarded wine division to track harvest, sales, demographic and other trends that affect the bottom line.

California regulators shut down Silicon Valley Bank in Santa Clara on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) to serve as receiver.

Silicon Valley Bank is known for its deep relationships with California’s technology sector. But it is also the professional home of Rob McMillan, an executive who established the SVP wine division decades ago. The wine division’s future is unknown, according to a blog post McMillan released over the weekend.

It is also indispensable, said Erik McLaughlin, chief executive officer of Metis LLC, a Walla Walla merger and acquisition firm focused on the wine industry.

He called McMillan’s annual State of the Industry Report “the single most important meta data for our industry.” As regulators work to find a buyer, he is hopeful the wine division will be sold to an organization that recognizes its value.

“I think Rob is a tremendous asset to the industry and someone is going to pay him for that work,” McLaughlin said.

The Washington State Wine Commission shares that view.

“Silicon Valley Bank’s State of the Industry report is widely read and well respected. We certainly utilize it as part of our analysis when making decisions and planning for the future, as part of larger research and data collection,” said Chris Stone, vice president for marketing and communications for the commission, which is tasked with promoting Washington wine.

The bank’s demise was expected to be “THE topic of discussion” at Taste Washington, a food event held in Seattle over the weekend, according to one local wine journalist.

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JJ Williams of Kiona Vineyards and Winery participated in the event. He confirmed he fielded numerous questions about the bank failure.

Silicon Valley Bank reportedly boasts 400 wine clients and issued $4 billion in loans over three decades. The outstanding balance was more than $1 billion at the end of the year, according to research by Shanken Communication Inc., a New York research firm.

Washington boasts 1,050 wineries, more than 400 grape growers and has 60,000 acres of wine grapes under cultivation.

It’s the second largest wine producing state in the country, according to the Washington State Wine Commission.

The commission calculates its impact at more than $8 billion, though that figure has not been updated in several years.

Uncertain future

McMillan’s research, much of it drawn from bank records, is cited by wine industry executives, academic researchers and the media that cover them. McMillan himself lends his expertise as a speaker at industry events, including symposiums and trade shows.

He provided industry and peer benchmarks and writes the annual State of the Industry report that was the wine world’s equivalent of the presidential State of the Union.

McMillan posted about the wine division’s uncertain future, calling the bank’s failure “unnecessary” and “fear-based.”

“The wine industry had nothing to do with this,” he wrote.

He said it is unclear if the wine division’s regular reports will continue.

Silicon Valley Bank provided them at no cost and drew heavily from data it owns. That may or may not exist after the collapse. Regulators and bank executives spent the weekend scrambling to find a buyer for Silicon Valley Bank and to assure depositors their money is safe.

“Unless the Wine Division is working under a different brand in the next week or so, I can say with a fair degree of certainty that I won’t be able to produce Direct to Consumer benchmarking information this year,” he wrote..

He said peer group analysis is based on the bank’s own database of winery financial statements, which does not exist elsewhere.

“If the bank has a buyer, the platform will go to that buyer to decide what to do, but the likelihood is that information will be lost sadly,” he wrote.

McMillan indicated there is still time to “see how things play out” before October, when he typically begins compiling State of the Industry.

“While SVP has done these reports gratis, there is a significant cost to produce them and logistics would have to be covered,” he said.

2023 wine report

McMillan’s 2023 report, released in January, touches on a mix of both positive news and negative for the wine industry, which is worth an estimated $8 billion in Washington state alone.

On the positive side, demand for premium wines is growing and small harvests in California helped balance supplies.

On the negative, younger drinkers are apparently losing interest in wine.

“Consumers are drinking across beverage challenges, and those under 60 don’t have the same appreciation for wine as those over 60,” he wrote.

Bank downfall

The downfall of Silicon Valley Bank came with stunning swiftness.

Word that it was struggling to shore up its balance sheet led to a run on the bank, which is federally insured, shortly before regulators moved to take control.

The FDIC created a new institution to hold deposits and pledged a return to business on Monday.

It said Silicon Valley Bank had approximately $209 billion in assets and $175.4 billion in liabilities at the end of 2022. The amount of deposits above the federal $250,000 insurance limit was undetermined at the time the bank was closed.

The FDIC said it would determine the amount of uninsured deposits as it obtains information from the bank and customers.

Silicon Valley Bank is the first FDIC-insured institution to fail this year and the first to close since a Kansas bank failed in October 2020.

Congress established the FDIC in 1933 to insure bank deposits. No depositor has lost FDIC-insured funds. FDIC insurance does not cover investments, cryptocurrency or similar products.

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