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U.S. backstops Silicon Valley Bank sale to First Citizens

Published 03/26/2023, 07:24 PM
Updated 03/27/2023, 08:31 PM
© Reuters. FILE PHOTO: First Citizens BancShares logo is seen in this illustration taken March 19, 2023. REUTERS/Dado Ruvic/Illustration

By Scott Murdoch and Mehnaz Yasmin

(Reuters) - U.S. regulators said on Monday they would backstop a deal for regional lender First Citizens BancShares to acquire failed Silicon Valley Bank, triggering an estimated $20 billion hit to a government-run insurance fund.

The deal comes after the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank on March 10 after depositors rushed to pull out their money in a bank run that also brought down Signature Bank (NASDAQ:SBNY) and wiped out more than half the market value of several other U.S. regional lenders.

The deal was "momentous" for First Citizens, CEO Frank Holding told investors on a conference call Monday. "We believe this transaction is a great outcome for depositors."

The Raleigh, North Carolina-based lender has completed 21 such government-assisted deals, including 14 since 2009 when CEO Holding was made chairman, according to a Piper Sandler note on Monday.

The FDIC fund does not take U.S. taxpayer money and is instead replenished by a levy on member banks.

"The FDIC’s sale of SVB helps show business can go on as usual for the banking industry," a team of Wells Fargo (NYSE:WFC) analysts led by Mike Mayo said in a note on Monday.

First Citizens will not pay cash upfront for the deal. Instead, it said it granted equity appreciation rights in its stock to the FDIC that could be worth up to $500 million -- a fraction of what Silicon Valley Bank was worth before it failed.

The FDIC will be able to exercise these rights between March 27 and April 14. How much cash it receives will depend on the value of First Citizens' stock.

First Citizens shares jumped 50%.

First Citizens will assume Silicon Valley Bank's assets of $110 billion, deposits of $56 billion and loans of $72 billion as part of the deal.

The FDIC said the $72-billion purchase of SVB's assets came at a discount of $16.5 billion.

SVB Private, which the FDIC was trying last week to sell separately and that Citizens Financial (NYSE:CFG) Corp had expressed interest in, was acquired by First Citizens as well.  

First Citizens said SVB's Private wealth business "is a natural fit for our high-touch and sophisticated level of high-net-worth customer service and approach."


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 protect it against potential credit losses.

"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.

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

SVB's collapse triggered the worst banking crisis since 2008, pummelling banking stocks globally. Shares in European lenders fell sharply on Friday, led by Germany's Deutsche Bank (ETR:DBKGn), raising concern among authorities about a potential credit crunch.

Shares of U.S. banks - both large and mid-sized - climbed on Monday.


SVB customers will continue to be able to access their accounts through websites, mobile apps and branches, First Citizens said. Employees in the acquired businesses will be retained, it added.

The deal will accelerate First Citizens' expansion in California and give it wealth management capabilities in the northeast U.S., First Citizens said.

"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," Holding said in a statement.

First Citizens has around $109 billion in assets and total deposits of $89.4 billion. The combined company will have total assets of $219 billion and $145 billion of deposits, according to a First Citizens presentation.

"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.

That is on top of the $2.5 billion loss to the fund the FDIC incurred when it sold Signature Bank to New York Community Bancorp (NYSE:NYCB) one week ago.

© Reuters. FILE PHOTO: First Citizens BancShares and SVB (Silicon Valley Bank) logos are seen in this illustration taken March 19, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

The loss will be "handled solely by the banking industry," bringing the fund to around a third below its statutory minimum, Wells Fargo analysts said.

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

Latest comments

Well I'm gonna need my money direct to post I don't know how how come when I get the money to
We here at First Citizens Bank would like to thank Donald Trump and Joe Biden for doubling the nation’s money supply 🤦‍♂️
Drama free Signature Bank liquidated at a 2.5 billion cost to the FDIC. Silicon Valley Bank, the high drama mini series, cost 20 billion. These are boutique banks. So is First Republic. The FDIC is also funding $140 billion to the bridge banks for SVB and Signature with $11.9 billion in loans from the Federal Reserve's newly created Bank Term Lending Program (U.S. bonds and mortgage-backed securities for collateral) and $25 billion from the Treasury’s $38 billion Exchange Stabilization Fund.
So basically a government bailout. Just as we said all along. Between Biden Powell and Yellen- They nationalized the banks. Same same as communist.
Yep, same as communism, Einstein.
Same same
Forgive me.
What the FK happened to the 20 billion
Wtf happened to the 20 billion?
They are not paying cash and the government has to hold thier stock? geez
Money printer back on everything is awesome!
Good news now to lure investors confidently pushing up the stocks......later repeat crisis bad news to create fear selling again ...... that's how MM make money........
Thats how trader's make money too but i guess not you
All good, should I keep on to invest in it?
Hopefully they take over the deposits and loans only but not the branches and the staff.
all good guys and market also corrected lot from top. it will go up now
Why First Citizen bank rush to swallow such a deadly poison pill? Money has been keep moving out of SVB while everyone is seeing now is just the begin of a vampire financial crisis including trillions of commercial loans, US debt and next residential loans. Also, both business and individual are dropping quickly for obvious reasons
Must be getting a blank printing press check from the FED with management pocketing hundreds of millions.
fdic hokding on to the toxic assets, this was just to give depositors a sense of stability if this works this could stop outflows
The assets of SVB are really good. It's a steal deal. Most people don't understand its a liquidity issue, not asset issue.
Probably it’s the next bank to fail….repeat of FTX scenario
Any news on the incoming massive Commercial Real Estate defaults?
Not to mention non performing junk bonds.
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