Silicon Valley Bank leaders aren’t earning any plaudits for managing risk after the tech lender’s collapse earlier this month sent shockwaves through the U.S. and international financial systems.
But several years ago, the bank exercised much greater prescience about risks.
As the U.S. and other nations began imposing sanctions on a growing number of wealthy and powerful Russians, Silicon Valley Bank (SVB) responded by shedding Russian depositors, according to a tech lawyer who watched the bank shutter his many Russian clients’ accounts.
That trend was common in Western financial institutions, experts say. But at SVB, it was a remarkable shift from the bank’s alacrity in seeking Russian investments less than a decade earlier.
The about-face may have spared SVB from financial pain and a potentially serious crisis last year when the U.S. rapidly expanded sanctions on Russia for invading Ukraine, crippling business with the country.
Ironically, it also likely allowed some Russian tech investors to avoid the chaos of the bank’s failure.
Silicon Valley Bank aggressively pursued Russian capital during the 2000s, a source of seemingly stable revenue whose risk increased as U.S.-Russian relations worsened.
“Five years ago, 80% of my clients banked at SVB,” said Leonard Grayver, the California attorney who has worked with many of the wealthy Russians investing in technology companies. “Now it’s 30%.”
Russia’s then-President Dmitri Medvedev came to Silicon Valley in 2010 on the brink of surging Russian investment in the U.S. tech sector.
Oligarch Alisher Usmanov, state nanotechnology firm Rusnano, investment bank VTB Capital and even state-run Sberbank are some of the Russian investors who poured billions of dollars into technology companies in the ensuing years.
Meanwhile, more than 100 Russian technology companies settled in Northern California, with officers of U.S. tech firms joining boards of Russian counterparts. At the height of SVB’s success, it was the preferred institution for high-rolling Russian investors.
California firms linked to Suleyman Kerimov, an oligarch with close ties to Russian President Vladimir Putin, opened up checking and other accounts at SVB, with one $20.2 million transfer going through the institution, according to financial records obtained by The Standard.
But by the mid-2010s, the picture changed drastically.
In spring 2014, after the Kremlin annexed Crimea and launched an incursion into eastern Ukraine, investment and exchange between Russia and the U.S. slowed because people worried about political tensions between the two countries. Investors and companies feared the sanctions already imposed by the U.S.
In April 2018, the U.S. Department of the Treasury warned American financial institutions to exercise “enhanced scrutiny” of transactions involving Russia.
“All around the Western world, thousands of Russian bank accounts have been closed and similar amounts refuted because of the money laundering risk,” Swedish economist Anders Åslund told The Standard.
Elina Ribakova, deputy chief economist at the Institute of International Finance, added: “Risk managers were not keen on approving new exposures on Russian financial institutions and asking portfolio managers to scale back existing ones.”
Grayver, who says he represents a significant portion of Russia-linked venture capital in Northern California, said that led to an exodus.
“Most of them—everything and everyone—banked with SVB,” he said “Most of them have had to go elsewhere. Ninety percent had their account shut down.”
At the same time, the sanctions and resulting wariness haven’t exactly eliminated Russian investments.
Grayver estimates that there is between $10 billion and $50 billion of Russian money sloshing around Silicon Valley. And not all Russian SVB depositors got the boot—partly because it’s not always clear which investors are Russian.
Many of Grayver’s clients pushed out by SVB are venture capital funds registered in the United States, but whose limited partners include Russians. In a way, they lucked out.
But for those who stayed, SVB’s collapse came as a deep shock.
“A lot of investors are looking at it in an almost metaphorical and metaphysical sense, as if it’s a predicament that will take over the entire Silicon Valley,” Grayver said. “They’re almost looking at it in quasi-religious terms.”
Even Grayver, who has 30 years of experience in Silicon Valley, is shaken. He remembers the implosion of the dot-com bubble in 2000—but that took place over six months to a year.
With Silicon Valley Bank, the bottom suddenly just fell out—some of its ousted Russia-linked clients fortunate to watch from the sidelines.
As Grayver recounts, “It was three days of sheer panic like I’ve never seen before.”
Matthew Kupfer can be reached at firstname.lastname@example.org