First Citizens to Buy Silicon Valley Bank

First Citizens BancShares Inc. said Monday it would acquire the deposits and loans of failed Silicon Valley Bank, closing one chapter in the crisis of confidence that has ripped through global financial markets.

The Federal Deposit Insurance Corporation (FDIC), which took control of SVB earlier this month, said in a separate statement it has received equity appreciation rights in First Citizens BancShares stock with a potential value of up to $500 million as part of the deal.

First Citizens, which described itself as having completed more FDIC-assisted transactions since 2009 than any other bank, said the combined company would be resilient with a diverse loan portfolio and deposit base.

Under the deal, unit First–Citizens Bank & Trust Company will assume SVB assets of $110 billion, deposits of $56 billion and loans of $72 billion.

“Prudent risk management approach will continue to protect customers and stockholders through all economic cycles and market conditions,” the statement said.

MOVEMENT OF DEPOSITS

First Citizens will also receive a line of credit from the FDIC for contingent liquidity purposes and will have an agreement with the regulator to share some losses on commercial loans to provide further downside protection against potential credit losses.

Analysts said the move was positive for financial stability and the venture capital industry but only up to a point.

“I think First Citizens Bank’s acquisition of the SVB loan book and deposits does not add much to solve the number one issue that the U.S. banking system is now facing: deposits leaving smaller banks for larger banks or money market funds,” said Redmond Wong, Greater China market strategist at Saxo Markets.

SVB was the largest bank to fail since the 2008 financial crisis when California regulators closed the bank on March 10, sparking massive market disruption and heightening stresses across the banking sector globally.

Based in Santa Clara, it was the 16th biggest lender in the U.S. at the end of last year, with about $209 billion in assets.

The crisis in confidence its collapse triggered also led to the failure of Signature Bank, whose deposits and loans will be taken over by a unit of New York Community Bancorp and forced Switzerland’s second-biggest bank, Credit Suisse, to agree to a rescue by rival UBS.
 

Worries about the banking sector globally continue to grip investors with shares in European lenders having fallen sharply on Friday, led by Germany’s Deutsche Bank, while authorities are also worried about the potential for a credit crunch.

VENTURE CAPITAL BUSINESS

From Monday, SVB’s 17 former branches will begin operating as Silicon Valley Bank, a division of First Citizens Bank and SVB customers will continue to be able to access their accounts through websites, mobile apps and branches, First Citizens said.

It added that the deal would accelerate its expansion in California and give it wealth management capabilities in the northeast of the United States.

“We are committed to building on and preserving the strong relationships that legacy SVB’s global fund banking business has with private equity and venture capital firms,” said First Citizens Chief Executive Frank Holding Junior said in the statement.

First Citizens has around $109 billion in assets and total deposits of $89.4 billion.

The FDIC said First Citizen’s purchase of about $72 billion of SVB’s assets came at a discount of $16.5 billion.

“The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership,” it said.

Approximately $90 billion in securities and other assets from SVB will remain in receivership for disposal, the regulator added.

Another U.S. regional lender, Valley National Bancorp, had also been vying to buy SVB, media reports over the weekend said.