ON Friday at 6:30 in the morning, Connor McMahon, owner of Fulldraw Vineyard in Paso Robles, California, went into panic mode over the news of Silicon Valley Bank’s impending collapse.
When the 35-year-old winemaker finally connected with a bank loan officer at 7 a.m., it was too late to move the winery’s money into his SVB checking account so he could open a new account elsewhere. The FDIC had already taken over the bank and shut its systems down. Whatever was in progress—loans and deals—stopped dead.
Silicon Valley Bank, which was America’s 16th largest bank, was known as a key banker to the tech industry. Less well-known is how intertwined it has been with the wine industry. It has some 400 vineyard and winery clients in northern California, the Central Coast and into Oregon—and many in the winery businesses, often family-run operations, describe such a long-standing and close relationship with SVB that its executives effectively functioned more like their business partners.
McMahon’s story is like those of many other small and medium boutique wineries in a region that had already been hit hard in recent years by climate change-related challenges, from fires to frost. Weather, bugs and bad harvests are expected hazards of the industry. Bank failures are not.
For three hours on Friday morning, McMahon and his wife, Rebecca, made 70 phone calls to try to ensure their small, 2,000-case-a-year winery could keep functioning. “Mother Nature doesn’t stop for bank failures,” McMahon said in a phone interview.
For him, as for other winemakers, March is the beginning of the growing season, when he needs more workers in the vineyard, ships spring releases to his wine club, and gets ready to purchase bottles, corks and labels for the past vintage. All that requires cash, from bank accounts and operational lines of credit that suddenly were frozen.
A focus on wine
Back in 1994, executive vice president Rob McMillan founded Silicon Valley Bank’s unique Wine Division and it became a significant lender to the industry. “We understand the wine industry and its particular kinds of risks,” he said in an interview. “We have deep expertise. Some employees were former winemakers with MBAs; some even volunteered regularly to work harvest at wineries. These are family businesses.”
McMillan told early clients such as Rob and Maria Sinskey of Robert Sinskey Vineyards that the wine businesses had the appeal of hard assets—land, buildings, equipment.
Winemaker Adam Lee, founder of Siduri and Clarice Wine Co. in Sonoma posted a letter on the latter’s website on Sunday morning, about the ways SVB’s wine department took an active interest in small mom-and-pop wineries and their success, including his. “They came and helped us sort grapes,” he says. In a subsequent interview with Bloomberg, Lee says that Silicon Valley Bank was a significant lender to them. The closeness between the bank and the industry meant that “those wineries are quite exposed.”
Jasmine Hirsch of Sonoma’s Hirsch Vineyards describes their 20-year relationship with the bank as “more partner than bank,” adding, “they know how to value our inventory and how long it takes after planting a vineyard before that translates into wine and sales and profits.”
Little wonder that anxiety—and for some, despair—hung over the weekend at the 15 wineries I contacted on Friday, Saturday and Sunday when it seemed like their partner was gone for good.
Some didn’t want to talk on the record. Many others, like Stu Smith of Smith-Madrone, work with banks like Wells Fargo, Bank of America and Ag Credit and weren’t affected. According to Wine America, the National Association of American Wineries, in 2022 there were 4,795 wine producers in California as well as 89,882 acres of vineyards, meaning roughly 10% of them were clients of SVB.
A sour Friday
Though all accounts up to $250,000 are insured by the FDIC, on Friday no one knew when they would be able to get their hands on their money to do things like make payroll.
Mark Henry, owner of boutique Montoliva Vineyard and Winery in the Sierra Nevada Foothills, received a notice that his payroll software company used SVB for its activities and had suspended collecting payroll tax deductions and direct deposits for his employees.
McMahon lost no time opening a commercial account at another bank on Friday, then negotiating with the farming company that takes care of his 45 acres of vineyards, and reassuring his employees he’d pay them from his personal funds. To pay Fedex to ship wines to his wine club on Monday, he planned to use his own personal credit cards.
Most important, he arranged for his credit card processor for transactions from buyers online and in the tasting room to redirect all new payments to his new account.
As at so many wineries, his spring release offering had already gone out and most of the purchase money had already been deposited in his Silicon Valley Bank account.
“For many wineries,” he explained, “the income coming in from these release offerings is significant and far exceeds the FDIC insurance limit.”
To limit his exposure, Lee of Siduri and Clarice Wine Company, has been forced to delay his own spring release, until he could arrange a new bank account. “I have to make other arrangements now,” he said on Monday morning, adding that he’s been approached by “quite a few banks,” since he posted the letter on his website.
For Rob and Maria Sinskey, the stakes were higher. They’d sold their winery building in Napa’s Stag’s Leap District and the surrounding vineyards last fall, closing at the end of November. (They held on to their winery name and other vineyards.) All the sale proceeds, way over the FDIC insured limit, were parked in their SVB business account. Their personal accounts were there, too. They feared their new wine dreams were on permanent hold. On Monday, Maria said they were still waiting for wire transfers to go through and they “wouldn’t breathe until their money was secured in another account.”
News to savor, for now
The FDIC announced on Sunday that clients would not only have access to their insured accounts Monday morning, but also said the government would back deposits above the insured amounts. “We’ll be okay in the short term. We’ll be able to cover payroll and keep working.” Maria Sinskey says.
But the wineries’ long-term worries and industry consequences remain. “The biggest question is who’s going to buy SVB’s winery loans and how that might change our borrowing costs,’’ says Hirsch.
Wineries rely on a line of credit to smooth out their cash flow and on loans for buying land, vines, tanks and barrels, and for winery construction costs. Over the past 30 years, the wine division has extended more than $4 billion in loans to wineries and vineyards, including prestigious names like Napa’s Cade winery, founded by California governor Gavin Newsom, billionaire Gordon Getty and general manager John Conover. Some winemakers said that the division’s intimate understanding of the wine industry, willingness to offer loans to small players that other banks rejected, and nurturing follow-through led to good deals and smooth operations. They worry that another parent bank wouldn’t invest the time and care going forward. Bloomberg News