I’ve posted before about the sad underbelly of “living the dream” of owning a wine store. One of the sad things is the lack of the big, fat corporate expense account… Or an account to buy shiny new computer equipment (or an IT department to set it up.) So when your old stuff moves into the scuffed-and-limping-along phase, you deal with it for as long as you need to.
So when you drop your phone two months after buying it…And the screen cracks…but the touch screen still works..and yeah, there are glass shards kind of sticking out but they’re not actually drawing blood…and the kids can still play Angry Birds without inflicting harm on their little fingers…
When this happens, you stick with your sad sack phone for as long as you can, ideally until your contract resets. Which is what I did. And yes, I could have gone to any of the many “guys” that helpful customers knew that could fix me up. But that would require phone calls, and subway trips and time….and like I said – it’s not like anyone’s fingers were bleeding!
But…yesterday after over a year of using this cracked phone, my contract reset and I was able to justify getting a replacement. With the upgraded insurance. And the super protective outercase. And the new Siri feature (which frankly, is a little creepy, but it’s even more entertaining than Angry Birds.)
So bye bye iPhone. I’m sorry I dropped you…so many, many times. But you served me well until the end. RiP(hone)
A NOTE FROM THE FUTURE: Part of the reason that people never thought we had spritis is because the shop name was Frankly Wines. If it had been Frankly Wines & Spirits, that would have solved the problem. But it wouldn’t really have fit on the sign. (And when I first opened that shop, I had a wine-only license.) Customers take the names of alcohol-related shops very literally. You think I would have learned that lesson and names my new shop Copake Wine & Spirits Works. But nope, I went with just Copake Wine Works. It fit on the sign, it evoked the nearby Copake Iron Works. And honestly, even though we do sell spirits, we’re not the typical “liquor store” that “& Spirits” or “& Liquor” evokes. I think even if we did have that catagory in our name, people would still walk into the shop and ask where the liquor is.
I worked in marketing for many years before opening this store, so I know a thing or two about the theortical application of reach and frequency in the midst of major media clutter. But with the store, I’m living the reality. Every chance I get, I mention that we now sell spirits. It’s in the newsletter. Every newsletter. For the last six months. We have a big sign at the store with a big arrow pointing at the spirits shelves. And those shelves happen to sit right next to the cash register, where there’s usually a helpful Frankly Wines employee ready and willing to answer questions.
And one of those questions is often, “Is there a store around here that sells spirits.”
Now from this position, if the person asking the question were to just turn their head a half click and focus, they would see several shelves filled with spirits. Actually, they probably did see the shelves. They just didn’t SEE them. Such is the nature of our cluttered environment.
Anyhow, this is a long way of introducing some of the gift options we’re most excited about this year Cocktail Kits!
Because they involve sprits. Which we know sell. Right up there by the cash register. Right in front of your eyes.
The Not-So-Classic Not-Champagne Cocktail Kit: All boxed up and ready to go, this could be the perfect gift for your favorite budding mixologist, bar chef, or whatever they want to be called these days. Each kit includes everything you need to make Nick’s not-so-classic take on a classic Champagne cocktail. It’s the perfect accompaniment to brunch, with just a little sweetness, a hint of berry fruit notes from the cassis, and a lovely floral lift from the Elderflower Liqueur. And bonus – the bottles are really, really pretty.
Each kit includes 1 bottle each:
Pierre Chermette Crème de Cassis Chase Elderflower Liqueur Vullien Sparkling Vin de Savoie + a recipie card
We’re now in what I call the silly season, more commonly known as DECEMBER! As my 7 year-old would say, “In my imaginary world, I have a beautiful booklet laying out all my suggested gift options. Would you like one?”
But that’s the imaginary world. In the real world, the autumn decorations are still in the windows, I’m still sorting out my Champagne buy, and there’s no beautiful booklet anywhere in the near future.
But there will be blog posts. And facebook posts. And tweets. So stay tuned.
A NOTE FROM THE FUTURE: Yeah, there wasn’t much of any of the above. Well, maybe there were tweets, but I’m not going to wade through them. As for blog posts? There were exactly four more before the end of the year.
One of my most popular posts ever was a rant on wooden wine boxes. I had a theory that while most people start out thinking these boxes are the coolest things going, the longer you work in retail, the more you grow to loath them.
I arrived at the ‘Utter Contempt’ phase years ago, so these days my enjoyment of wooden boxes is limited to putting them out on the sidewalk and doing a staff poll on how long they’ll stick around. It’s not long – usually under five minutes. Once, we had two boxes sit on the sidewalk for an entire 20 minutes – but that was because monsoon-type wine started to pour the minute we put them outside. The second the rain stoped, the boxes, waterlogged and all, disappeared.
So yes, I am not a big fan of wooden wine boxes….until yesterday. Some of the love came back when I spotted this urban box garden in front of a nearby restaurant. It’s cool enough – and simple enough – that I may go back to keeping the boxes for myself.
Frankly Wines box scavengers, be warned – the glory days may be over!
A NOTE FROM THE FUTURE: I adored these wines… and this is a good reminder that I need to look them up all these years in the future. I still have this sweet memory of meeting vigneron Virginie at a tasting and talking about the sparkling Mauzac. She said they loved it, but it was “old people wine.” That was close to 15 years ago, so I guess I could say I was an old soul. But now… I’m just… old people. (I joke a bit, I’m really not that old. But I’m definitely not young!)
Long time, no blog. But lots of Twitter. Oh, those were the days. You can still follow me at Follow me @franklywines where you can get exxtremely up-to-the minute musings on life as a wine retailer. I probably won’t blog about the fun that is running from an off-site distributor tasting to pick up a pre-schooler while trying to wipe the purple stains from my teeth. But I will tweet about it. Because that’s exactly what Twitter is for!
A NOTE FROM THE FUTURE: Oh Twitter, RIP. How I loved you back in the day. It’s hard to image now, but Wine Twitter (before we knew to call it Wine Twitter) was a fun, kind, even charming place to hang out. Joe Dressner was the closest we came to a villian, and to call him that would be in correct. He was more like the Socrates of the platform -keeping us all honest and challenging our beliefs. This was also the time of #reallylongpunnyhashtagsjustforfun. Lyle Fass was the king of this. You can still follow me at @christy.frank.wine or over at IG’s Threads, but I rarely play on those platforms. I’m still on IG as myself and as Copake Wine Works, just because it’s so darn easy. Or for kicks, do some deep scrolling on my old Twitter a.k.ka. X account to see what it was like back in the day.
But in the hopes of getting this blog rolling again, I’ll do one of my quickie cut-and-paste jobs from the web site. I could feel guilty about these cut-and-pasties, but I’m a big believe in frequency and repetition. I know most of you aren’t reading this blog…and the newsletter…and the tweets…and the facebook page…oh wait, there’s no facebook page….yet. So I’ll just keep posting the same things in multiple places in the hopes that most people catch everything at least once.
So…in the name of frequency and repetition, here we go…again…
Domaine de Causse Marines – Tres Cool, Tres Tasty
I will admit it. For a long time I had a thing against the wines of Causse Marines. The label was just a little too cheekily cute, the name was almost certainly a pun that was far beyond my less-then-beginner French, and the bottles kept appearing on the menu and shelves of every new hip wine bar and shop. In other words, I was convinced these wines were far too cool to be any good. Well, shame on me. Because when I finally got around to actually trying these wines, poured for me by one of the owners, I was completely smitten.
Causse Marines is the domaine of Virginie Maignien and Patrice Lescarret, two charming young vignerons. They’re doing their little part to preserve obscure local grapes like Mauzac, Duras, Braucol, and Loin-de-l’oeil. Their wines fall firmly into the “natural wine” category, with nothing added (except the very minimal amount of SO2 needed to keep the wines from getting all funky), nothing taken away. The vines are tended biodynamically with no pesticides, fungicides or artificial fertilizers. All this adds up to vibrant, unique, highly-drinkable…and yes…very cool wines.
3-Pack includes:
Domaine de Causse Marines Les Grielles Blanc 2008: This could be the perfect spring/summer wine. It’s a blend of the not-so-well-known grapes Muscadel, Loin-de-l’oeil, and Mauzac. The Muscadel adds a bit of a floral touch, but the overall taste is crisp, clean and delicious – sort of like springtime in a bottle.
Domaine de Causse Marines Peyrouzelles Rouge 2008: You’ve probably never heard of Duras or Braucol (also known as Fer Savadou.) These are the local red grapes of Gaillac which on their own, make for lighter, spicy, aromatic reds. This one has touch of Syrah in the blend, which plumps it up just a bit. It’s an easy drinking wine which is especially nice with a bit of a chill.
Causse Marines Preambulles Vin Mousseaux Brut 2009: A petillant natural made from 100% Mauzac. The funkiest of the bunch with a bit of a bruisey green apple, but it finishes crisp and clean. Think of it as a grape-based beer alternative. Or just think of it as good!
A NOTE FROM THE FUTURE: Cue up the old lady crying into the wind. Other oldish-timers will look at the price below and start to scream as well. Lopez de Heredia Rosado was never meant to be a cult wine. At a long ago breakfast-tasting (yes, breakfast tasting,) Maria José López de Heredia told those of us there that this wine was something made just for the local people. It was something they liked to drink that was never really meant to be sold outside the town. If my numbers hold, I think the number of cases was something like 200. But it was sold out of town, and a handful of account fell in love with it, including mine. We would buy it five cases at a time. On deal pricing. Yes, long ago thre was a FIVE CASE PRICE on Lopez de Heredia Rosado. These days, you’re lucky if you can get FIVE BOTTLES!!!! Because if you do the math, even if every bottle of those 200 cases were sent to the USA (which they were not), it doesn’t take long before all those bottles are sold – with or without a five case deal. And this was a very long-aged wine…. so as I noted below, one year we were selling the 1997, the next year, the 1998. Then the 2000. And in 2010, this was probably around the time of that breakfast tasting with Maria José, when she quietly dropped the new that there would be no more rosado for many years, because they needed to let what they had age as the previous vintages had. (I think they “many” was seven, but I would need to check my notes.) So there was a very long period of no rosado to be had. When it eventually returned to the market, it had acquired the status of myth among a new crop of buyers It had also acquired a very new price – it now lists at most shops for over $100 per bottle. I don’t begrudge that price – this is truly a small production wine that requires a very long period of aging – and I think/hope that the winery is seeing as much of this price increase as the distributors and the retailers. There are many wines out there that cost as much or more and offer much less in terms of rarity and the time-value-of-money. But I do feel a bit of resigned nostalgia. Nostalgia for the ability to buy as much as I wanted whenever I wanted. And of course, for the price. But it was more than that – that general accessibility allowed the handful of buyers that fell in love with the wine to run with it for a bit, to make a market in it, to introduce it to would-be fans in our own communities. That was simply put, so very much fun. At the higher price – and given that each shop or account gets something like three bottles… you already have to be in the know if you ever want to drink it. And that’s a bit of a bummer. And with that… the old lady crying into the wind is heading off to get her coffee.
I write this post every year. Well, to be completely frank (ha ha), I just cut and paste this post every year. Which I’ll do again, with a few notes about how this vintage differs from the last. So go ahead and read below…or be truly trusting and just click right through the Frankly Wines store. Lopez de Heredia Tondonia Rosado Gran Reserva 2000 (Rioja, Spain)
This post is a re-run. But I thought it was pretty perfect when I wrote it last year (and the year before that). And I still think it’s pretty perfect. The wine in question is the Lopez de Heredia Rosado. Two years ago the 1997 was in stock. Last year it was the 1998. And this year, it’s the 2000, which I find to have more of the mineral notes of the 1997 than the rounder, more tropical fruit of the 1998. But even at its fruitiest, this is not a fruity wine, which is unexpected for a rose. Unexpected enough that we stuck a warning label on the wine. But if you trust my pairing recommendations – and you’re up for a little adventure – a little Lopez Rosado could be just the thing to perk up your Thanksgiving spread.
Here’s the scoop:
Imagine Thanksgiving dinner (the food, not your crazy uncle or your tispy cousin-three-times-removed.) The cranberry sauce, the turkey, the yams, the turkey, the stuffing, the turkey. It’s a wine-pairing nightmare. But this is the wine that can handle it all. Delicate enough to handle the turkey (which let’s face it, is pretty bland), a little fruit to deal with the cranberries and exotic enough to stand up to the stuffing, yams, and even pumpkin pie. It’s perfect.
But it’s not exactly your typical rosé – it has some of the tangy-ness you’ll find in a good fino sherry, only a hint of fruit, and lovely exotic spices like cardamom and ginger. So if you’re intrigued and looking for a little adventure, track down a bottle and include it in your turkey day wine spread. You should be able to find it for under $30 which may be a lot for a typical rosé, but not this rosé.
Two weeks until Thanksgiving – which means it’s time for the annual Thanksgiving blog posts and articles. These come in several flavors:
Posts and articles about what to pair with turkey
Posts and articles about why these types of posts and articles are dumb and useless (like this one)
Posts and articles about why these types of posts and articles are still relevant (like this one)
Most of these posts will make some mention of the following:
Zinfandel (either for or against it)
Alcohol levels (choose lighter wines so you can drink more)
Price (generally, some variation of “Don’t spend much b/c nobody really cares and you might as well keep the fancy stuff for the people that do.”
Now I do tend to agree that the posts that do nothing more than set out a laundry list of recommendations are indeed dumb and useless. But I also feel that a good piece on wine and Thanksgiving – one that helps you think about what to think about – is a good thing. Most people in a position to write these articles (and actually have them read) live and breathe wine. So yes, I can see how the prospect of writing an annual piece about what to pair with a meal that never changes can seem a little useless. But the general wine drinking public are not wine writers. And if the one year that someone decides to make a bit of an effort with the Thanksgiving wine….well, it would be really sad if that was the one year that ever publication decided to just forgo the obligatory articles.
So I do think these articles are relevant. But I’m not going to write one since there are plenty of good ones already out there. But I am going to provide daily (or nearly daily) recommendations, each with a little bit of “why.” And of course, all these wines are available for purchase at Frankly Wines. Because (full disclosure here) I own a wine store. But if you didn’t catch that, you haven’t really been paying attention.
Hi wine industry friends (and anyone else who comes across this blog.)You thought the tariff process we went through was complicated? Well welcome to a whole new level of complication: the Silicon Valley Bank failure.
If you’re wondering why this bank sounds familiar, it’s likely because the Wine Division releases an annual State of the Wine Industry report. It’s a cornerstone of data-driven trend reporting within an industry niche not typically known for its access to hard data. The report usually kicks off a social-media flurry of industry-related thought pieces, comment wars, and meme activity and this year’s report, released in January, was no exception.
But right now, the headline story is about the bank’s collapse, a news story that goes well beyond the niche world of wine blogs and meme accounts. And of course, there are many, many, MANY pieces about what happened but a lot of them tend to be deep on jargon and light on detailed explanation.
So that’s what this piece is: an explainer that starts with a lession on bank balance sheets, touches on the accounting principles of bond valuation, and winds its way through what happened in the days before the FDIC closed the bank’s doors.
Scintillating? Maybe not. But it should give you an overview of what’s happening and why, how this bank is unique, and at the very end, a wee bit about how the Wine Division fits into all. (TLDR: it’s a casualty, not a cause.)
Happy reading!
– Christy Frank
Banking Balance Sheet 101
Commercial banks take cash deposits from individuals and businesses. They then use that cash to make loans to other individuals and businesses. They collect interest from the loan holders and pay interest to the deposit holders. They make money because the interest they take in is more than what they pay out. They’ll certainly have other income streams, but the main one will be based on this spread between these two interest rates.
In the language of accounting theory, those cash deposits are called short term liabilities. They are liabilities, because they’re something the bank owes someone. And they are short term, because if you go into the bank and ask for your money, it has to give it to you… pretty much right away.
All those deposits sit on the liability side of a bank’s balance sheet. On the other side of that sheet are the assets – including the portfolio of interest-bearing loans the bank holds. As the phrase “balance sheet” implies, these two sides need to, well, balance.
For most banks, most of the time, this balance is like a slow-moving seesaw. If the deposits are from a wide range of customers across a diverse set of industries, the risk that everyone will want access to their money at the same time is quite small. A further stabilizing force is that deposits under $250K are guaranteed by the FDIC – no matter what happens, that money is safe. And on the asset side, diversification also ensures that the loans come due on a regular, rolling basis, allowing for a constant stream of funds.
If this sounds like it might involve a lot of fancy math, you would be correct – which is why many banks have risk management departments working to make sure this all works smoothly.
In the case of Silicon Valley Bank (SVB), things didn’t exactly work so smoothly. Let’s explore…
Silicon Valley Bank’s Balance Sheet – Part 1
If we were to peer at the SVB balance sheet, we would see the bank had $173 billion in deposits on the liability side of its books. On the asset side, they had issued around $74 billion in loans to various companies. This left about $100 billion in deposits to be invested.
Now remember… to make money, banks need the interest on their loan portfolio to be higher than what they have to pay out on their deposits. $1 billion can’t just sit in a vault not drawing interest. That is not a money-making proposition.
So SVB invested that $100 billion in government-backed bonds. Were these assets low risk? Yes they were. Were they short-term? No they were not. Did this matter? It didn’t, until it did.
A Primer on How Bonds Work + Some More Accounting Theory
I know, I know…. you’re not reading this explainer to understand how bonds are priced or how they are valued on a balance sheet. But I’m going to tell you anyway. This is the first and potentially only time I’ll be able to put my London School of Economics degree in theoretical accounting and finance to use so I’m going with it. But trust me… it’s important.
Let’s say you’re a bank and you buy a $1000, 2% interest, ten-year government bonds. (You’re a very small bank.) You give the government $1000 (the face value of the bond) and the government gives you a piece of paper that says “IOU $1000 in ten years.” In each of those ten years, you collect 2% interest (or $20.) At the end of ten years, when the bond matures, you get your $1000 back and rip up the piece of paper. (Actual paper isn’t involved, but you get the idea.)
But meanwhile… more of that same bond is being traded on the bond market. Other banks and companies and individuals are buying and selling those $1000 face-value bonds. But as with any market, their value goes up and down. Some days you could sell yours for $1500 and other days, you might only get $500.
So what’s the main determinate of any bond’s value? Interest rates! I’ll spare you the details, but it is a truth universally (and mathematically) acknowledged, that if interest rates go down, the value of a bond goes up.
And if interest rates go up? The value of the bond goes down. This is very important to the mechanics of this story so I will repeat it: if interest rates go up, the value of a bond goes down.
Which way have interest rates been going? Up, up, up! Which means the value of those imaginary $1000 bonds trading on the bond market have been going down, down, down. Let’s say today, if you wanted to sell your bond, you would only be able to get $750 for it.
We’re now going to zoom back to the asset side of your very small bank’s balance sheet. You have to decide what your bond is worth. Which is it? The $1000 that you originally paid for it? Or the $750 that you could get if you sold it today?
What??? You don’t know the answer? Well hold on tight… because we’re about to go down a jargon hole and explore the world of Generally Accepted Accounting Principles.
Hold-to-Maturity vs Marked-to-Market: on which side is your bond buttered?
The answer to the question (what’s the balance sheet value of my bond?) is: IT DEPENDS!
If you intend to hold your imaginary bond to maturity, you get to classify it as, wait for it, “Hold-to-Maturity” and value it at its $1000 face value – no matter how high or low it’s trading on the bond market. Over the course of its lifetime, it could swing from a low of $5 to a high of $3000. (There’s pretty much no possibility a government-backed bond will swing that much, but I like to go for impact in my examples.) But it doesn’t matter, because you still get your $1000 once the bond reaches the end of its life.
But let’s say your plan isn’t to hold your bond – it’s to actively trade it, selling it and buying it back, essentially placing bets on whether it will go up or down. If this is your intent, then financial accounting rules require you to revalue it on your balance sheet, or “mark it to market,” every single day. One day you might value it at $1000. The next day, $1500. The day after, $850. (The actual day-to-day swings would likely be much smaller, but hey, impact!) This is logical – you might sell that bond at any time, at any price, so your balance sheet needs to reflect that risk.
The bonds used to balance a bank’s deposits are typically classified as Hold-to-Maturity. Also logical, right? Sure it is… as long as reality doesn’t intrude on intent.
Silicon Valley Bank’s Balance Sheet – Part 2
Remember those $173 billion in cash deposits on the liability side of Silicon Valley Bank’s balance sheet? They were drawn mainly from a slate of Venture Capital (VC) firms that invest in tech-driven startup companies as well as the startup companies that they were investing in. Startups get advice from their VC investors and in this case, the advice was “put your money in SVB.” A portrait of diversification this is not, but as a niche strategy to become the “go-to financial partner for investors in the innovation ecosystem and beyond” it was working very well. Deposits increased from $49 billion in 2018 to $173 billion in 2022 as the industry went into overdrive during the pandemic.
Business seemed to be chugging along nicely, but the proverbial train was poised to go off the rails. Actually, since we’re in the startup world, let’s shift from train analogies to airplanes.
Trains, Planes, and Exit Strategies
Startup businesses always talk about their “runway” – how many months they can operate before they run out of cash. As they burn through cash – and approach the end of their runway – they need to raise more funds or they’ll go out of business. This additional cash usually comes from VC investors and is part of an on-going fundraising strategy.
But VC firms don’t want to pave endless runways. Eventually they expect their investment cargo to take off, exit the airstrip, and provide the original investors with a return on that investment. Typically the startup company will be sold to another firm or “go public” and get a listing on a stock exchange through an IPO. Either way, a chunk of the returns from an exit goes back into the VC fund – and into their bank accounts. And everyone flies off into the sunset!
Except…
For reasons that I’m not going to get into now, but are tied to interest rate increases in fairly predictable ways, those exit doors were starting to close. Companies weren’t so keen to buy startups and IPOs weren’t happening. So more runways needed to be paved for longer periods of time – and the VC firms needed cash to do this paving.
Silicon Valley Bank’s Balance Sheet – Part 3 (or Run, VCs! Run!)
Let’s head back to the SVB balance sheet, shall we?
VC firms needed to use their cash deposits to fund their current portfolio of startup companies for longer than expected. And a lot of that cash was part of the $173 billion in deposits at SVB. Or more specifically, that cash was now sitting in bonds owned by SVB – bonds that were classified as Hold-to-Maturity.
Meanwhile, out in the open bond market, due to recent interest rate increases, those bonds were trading at much lower values. (Remember: interest rates go up, bond values go down!) So what happens when SVB has to sell some of those bonds to generate that cash? Well those “unrealized losses” had to be realized. And reported. Out loud. In public. The bank had sold $21 billion in bonds resulting in a $1.8 billion loss. This was announced on Wednesday, March 8th.
While the remaining bond portfolio didn’t need to be marked-to-market, some quick mathematical calculations could show that the remaining $80 billon (if my math is right, which it probably isn’t) wasn’t worth $80 billion in the open market.
Suddenly, the balance sheet doesn’t balance. Or more accurately, suddenly the world knew that the balance sheet didn’t balance. There weren’t enough assets on that side of the balance sheet to balance the deposits on the liability side. SVB had to somehow raise funds to fill that gap. On Thursday, March 9th, they announced they would do this by selling $2.25 billion in stock.
Word began to fly through the startup “innovation ecosystem” that SVB was in trouble. VC investors had once recommended startup companies in their portfolios open accounts with SVB. Now they were urging them to get their money out of those accounts – and fast. (And remember, this is a tech-based innovation ecosystem. That “ecosystem” is really, really small. And “fast” is really, really fast.) To add to the fun, remember that the FDIC only insures deposit accounts up to $250K – and nearly all of SVB’s deposit accounts were more than $250K.
So if you’ve watched It’s a Wonderful Life, you know what a bank run looks like and this was that. However, Silicon Valley doesn’t have a George Bailey to explain to the good-hearted VC townspeople why they should leave their money in the bank. So the spiral continued and by Friday, March 10th, the FDIC had taken over SVB and all deposits above $250,000 were potentially SOL.
Awkward Pause: What Exactly is the FDIC??
There’s no elegant way to work this into the story, so let’s just take a break to explain. The Federal Depository Insurance Corporation was created in 1933, after the great bank runs of the Great Depression. It’s exactly what it says it is – an independent federal government “corporation” that insures bank deposits.
For all my wine folks reading, think of it as wine marketing board, similar to Wines of Austria or Wines of Australia. All the wineries pay into a funding pool which is used to promote and grow the profile of the county’s wines. Except in the case of the FDIC, it’s banks. And the funding pool is used to make payments to the depositors at failed banks. Because banks fail more than we realize – they just tend to be smaller, with most of their deposit accounts under $250K. The fact that we don’t hear about them is silent proof that the FDIC is doing what it was established to do.
The Aftermath: A Bailout or Not a Bailout?
OK, back to our story. On Sunday, March 12th, the FDIC made it clear it would guarantee all SVB’s deposits – including those over $250K. That collective sigh of relief you might have heard that evening? It was an entire network of companies, their employees and their vendors that wouldn’t have to scramble to make payroll, pay their suppliers, and keep their lights on.
Is this a bail out? As with so much in financial accounting: IT DEPENDS!!
Yes, uninsured deposits are now being insured, but that comes out of the FDIC insurance pool. The $74ish billion in loans on the asset side of the balance sheet still exist and the companies that owe that money will still need to make their regular payments. The $80ish billion in government bonds, also on the asset side, will be used to pay back the deposits (although I’m not entirely sure how this works and that’s too much minutia for even me.)
What’s different from the situation in 2008/2009 is that SVB is gone. Poof! The FDIC stepped in to guarantee the deposits, but the owners of the bank are not being protected. Its equity – including the shares that traded on the stock market – no longer exist. If you were a mutual fund or a hedge fund or an ill-advised grandma holding SVB shares, those are now worth $0. Period. End of story. And any debt that the bank issued on itself, that’s gone as well.
So is it a bailout? Kind of. But if it is, it’s a much more limited sort of bailout than what happened in 2008/2009 when the failed banks were kept alive in ways that could be the subject of an additional 3000 words.
The Aftermath: To Panic or Not to Panic?
Now here’s the thing. A $1.8 billion asset write-down (a fancy term for “a loss”) on a $21 billion bond portfolio is indeed a lot of money. But remember – SVB still had about $80 billion in remaining bonds as well as an additional $74 billion in other loans. VC investors and startup investors are theoretically quite savvy in their understanding of how these things work. It was nowhere near insolvent. But a panic is a panic. And no one wants to risk being the last rat on ship that seems to be sinking, even if it has plenty of life vests on board.
Will the panic spread to other banks? Logically, it shouldn’t. Most banks’ deposits are much more diversified than SVB’s. Most banks haven’t built their strategy around being the go-to for a single, tight-knit clubhouse of an industry. And (hopefully) most banks are doing a better job of stress-testing their asset portfolios to ensure they can handle the bigger swings that come with higher interest rates. And while the recent increases in interest rates makes it more difficult for any business that benefits from cheap financing (i.e. almost all businesses), the startup world was especially at risk (which is a story for another time.)
(This story is moving as quickly as I can type so I’m not even going to try to keep up. Keep your eye on the news – and this is important: check the date and time stamp of everything you read. It might be old news by the time you read it!)
So What’s the “So What?”
I’m tired of writing, so now that you have a good understanding of how this all works, you can dig into all the speculation about near- and longer-term impacts on the innovation ecosystem of VC funds and tech bros, startups in general, risks to the regional banks of California, and regulatory impacts.
But let’s talk about how SVB relates to the wine industry, since there’s a good chance that’s why you started reading this piece in the first place. (Is this what they call “burying the lede?)
SVB’s Wine Division was established in 1994. Over those nearly 30 years, it made about $4 billion in loans to hundreds of wineries. This represented about 2% of the bank’s total loan portfolio, so if you’re doing the math, you’ve already realized this made the division a very small part of the overall SVB business.
But within certain niches of the wine industry, the Wine Division was an important partner, providing loans and lines of credit to a complicated, inventory-intensive, equipment-heavy industry that’s not well-understood by or terribly attractive to more traditional banks. The head of the division, Rob McMillian, also put together an annual State of the Wine Industry report which generated data-driven insights for a segment of the industry that tends to be light on data.
As I write this, the FDIC has promised that all customer deposits will be protected, even those above the $250,000 threshold, so the immediate threats to winery payroll and other operations is less intense than it was when I first started typing on Friday, March 10th.
But longer-term? It’s unclear whether the SVB Wine Division could have offered the sort of financing and partnership it offered – if it wasn’t part of the larger SVB. And if the conditions that allowed the larger SVB to exist, well, no longer exist? What does this mean for the overall sustainability of this niche of the wine industry?
Conversations for another time… because I need a drink.
A NOTE FROM THE FUTURE: This turned out to be a very good party. We wound up having it at the apartment, and as the night went on, we wound up on the roof. We needed ore wine so I told a couple friends they could go bring up anything they wanted from the wine fridge. “Anything?” they asked. I did a quick mental inventory and said sure, anything. Of course they came back with the one bottle I had forgotten about: Krug Clos du Mesnil. Yeah, no. Not that one. So they went back down and resurfaced with the bottle I had expected them to come up with: Krug 1996. And it was good. I’m now 50 and still haven’t opened that bottle of Clos du Mesnil. Soon. Soon.Certainly before I hit 60!
A couple of years ago I wrote a post about helping a customer select a birthday gift for a friend turning 40. At that point, the store had been open for less than 6 months, I was less than two months away from popping out my third kiddo, and the big 4-0 seemed a very, very long way away.
And now it’s less than two weeks away. (I actually had to check the calendar to confirm that small detail.)
But while I may not be diligently counting down the days to the milestone day, I have been diligently collecting the wines. I’ve scrounged up several bottles of things from 1970, my birth year. I have the good fortune of being born in a decent year for old wines, so I’m not related to the Port bin for birth year wines.
On tap from 1970:
Lopez de Heredia Tondonia and Bosconia
Carema Produttori
Cappellano
Chateau d’Yquem
I’ve also picked up some other milestone wines over the years – 1989s for high school graduation, 1993 for college. I love old wines, not just because I love the taste, but because I love pausing to remember what was happening in my life – or the world in general – when the grapes were being picked.
Well, this isn’t actually at Frankly Wines. It’s right around the corner, several stories up. In the glass – Puffeney Poulsard “M” – perfect on a (rare, this year) cool summer evening. Yeah, you know you wish you were here!
