Private wealth execs at JPMorgan and UBS told us they're lending more against private shares. WeWork CEO Adam Neumann has borrowed from both.
- Adam Neumann's millions of dollars in personal loans from three banks - which have also signed up to underwrite WeWork's initial public offering - are a sign of the times.
- Banks are building out lending to ultra-rich individuals, some of whom include Silicon Valley executives with a lot of wealth tied up in private shares.
- The lenders have also been vocal about leveraging relationships between wealth management and investment banking.
- Business Insider spoke with JPMorgan and UBS private wealth execs to learn about the demand they're seeing for these kinds of loans, particularly as big startups stay private longer.
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WeWork CEO Adam Neumann's millions of dollars in personal loans from three banks - which have also signed up to underwrite his company's initial public offering - are a sign of the times.
Banks are building out lending to ultra-rich individuals, some of whom include Silicon Valley executives with a lot of wealth tied up in private shares. The lenders have also been vocal about leveraging relationships between wealth management and investment banking.
We talked to private wealth execs at JPMorgan and UBS who described the demand for lending and potential risks involved as private company executives seek immediate funding for things like buying a home.
Neumann has a WeWork share-backed line of credit of up to $500 million from Credit Suisse, JPMorgan, and UBS, with some $380 million principal outstanding as of July, according to the coworking giant's August S-1 filing.
He's also borrowed another $97.5 million from JPMorgan across products including mortgages secured by personal property but not by any of his shares, according to the filing.
Business Insider spoke with Vince La Padula, the global head of lending solutions for wealth management at JPMorgan Private Bank. He was not authorized to comment specifically on the deal that JPMorgan - separate from the private bank - is participating in as an underwriter.
"We are seeing an uptick of companies staying private longer, but also, clients seeking to borrow based on those illiquid positions," La Padula said.
"You have to constantly, without naming names, think about how much exposure do you want to the for-hire car space, or CRE, or health care," La Padula said, referring to commercial real estate. "It's always a dialogue."
While some big startups are staying private longer, some recent IPOs like Uber and Lyft have stumbled in trading this year as investors question the companies' paths to profitability. WeWork's valuation has come under fire recently, and the company is mulling the drastic step of slashing its most recent valuation if it has any hopes of going public, according to media reports.
"At some point you have to think about - what is the firm's exposure to X company, or X individual? It's not just me, or it's not just the investment bank," La Padula added.
"They're heads of these companies, but in some cases they're also very public figures. So I want to make sure I understand the whole picture," La Padula said of managing risk in these types of loans against private stock.
He noted that the personal nature of the private banking relationship extends to the bank getting repaid.
"Who do I call directly if there's a margin call, if we're having an issue? That's a direct relationship," he said, noting the communication wouldn't have to go through an accountant, lawyer or family office in those cases.
Read more: Mutual funds like Fidelity's famed Contrafund have slashed valuations on their WeWork stakes
A number of funds at JPMorgan, one of WeWork's lead bookrunners in its quest to go public, have invested in the company, Business Insider has reported. Goldman Sachs is another lead underwriter, and seven other banks including Credit Suisse are also taking part.
WeWork declined to comment when asked about lending backed by the company's shares.
A growing number of UBS clients are also asking about this type of borrowing, said Michael Crook, head of Americas investment strategy for the bank's global wealth management unit, a trend he likewise attributed to companies staying private for longer. Crook was also not authorized to speak about the WeWork deal.
He told Business Insider that he aims for candid conversations about the risks that come with lending against private shares.
"It comes down to finding other ways to access money for lifestyle" and other purposes, Crook said. "Nothing about the use of these proceeds has changed, it's just a longer period to IPO," he added.
Wealth management ties
As deals grow larger and larger, leveraging the relationship between firms' wealth management and investment banking or securities businesses is increasingly important, industry sources have told Business Insider.
While some firms are doubling down on their commitment to wealth management, traditionally a relatively stable business full of long-term clients at the big banks, their investment banking arms are taking companies public later and later. Those two businesses can forge a natural - and profitable - relationship.
Morgan Stanley, one of the largest wealth managers in the world overseeing $2.6 trillion in assets at the firm, has been growing lending in its wealth arm. The bank is not participating in the WeWork IPO, or the debt offering a number of firms have signed up for once the company goes public.
Morgan Stanley's institutional securities arm has garnered on average $11 billion in client asset referrals to wealth management annually for the last four years, CFO Jonathan Pruzan said at an industry conference on Wednesday. He stressed the link between those teams.
"We think that this serves us as a competitive advantage," Pruzan said.
Morgan Stanley's wealth management arm has increased its lending balances to $74 billion from $25 billion six years ago, Pruzan said.
"We still believe there is more opportunity to provide credit to our clients," he said.
In La Padula's view, if a client has a significant position in a company that JPMorgan's investment banking arm is taking public, he has a better understanding of the wealth clients' needs.
"I know a lot about the company, I know the lock-up periods, I understand cash flow, I understand cash flow may be limited until they get some liquidity," he said.
Lending selectively
La Padula said clients inquire about borrowing against private stock for many different reasons.
"Sometimes it's for lifestyle, sometimes it's to buy more shares, sometimes it's to buy a home - especially for a lot of these Silicon Valley guys and the unicorns, a lot of them, literally, are trying to get mortgages," he said, adding that he will lend to those clients that otherwise have to wait months of liquidity on a "selective" basis.
At the end of the day, managing risk is a critical part of La Padula's role, and he aims to have an all-encompassing look at a client's financial life.
"It would be tough for me to sell an illiquid position in a private company if there's a big problem," he said. "That's, again, the premise of the whole conversation - that it's the full relationship, it's not just the line item if something goes sideways."
