First Citizens to Acquire Failed Silicon Valley Bank From FDIC
First Citizens BancShares, a family-run bank in North Carolina that traces its history to the late 1800s, said on Sunday that it would acquire Silicon Valley Bank, the California lender founded in the 1980s at the center of the technology industry, whose rapid growth and sudden collapse this month sent shock waves across the financial sector.
The Federal Deposit Insurance Corporation seized control of Silicon Valley Bank on March 10, after a run on deposits left it insolvent, making it the country’s largest bank failure since the 2008 financial crisis. The F.D.I.C. had since been looking for a buyer for the bank, which was the country’s 16th largest when it collapsed.
The deal for the bank, renamed Silicon Valley Bridge Bank after the F.D.I.C. seized it, included the purchase of about $72 billion in loans, at a discount of $16.5 billion, and the transfer of all the bank’s deposits, worth $56 billion. Roughly $90 billion in Silicon Valley Bank’s securities and other assets were not included in the sale, and remained in the F.D.I.C.’s control.
The discount applied to the loans could help set a benchmark for other banks seeking investment, said Mark Jeffrey Flannery, a professor of finance at the University of Florida. “Now they have an idea,” he said. “Yes, it’s bad, but it’s not a complete train wreck. It’s just very bad.”
Silicon Valley Bank had roughly $175 billion in deposits before its collapse, an illustration of how extensive the withdrawals were before regulators seized it. A test for First Citizens is whether it can maintain relationships with the tech-heavy client base that Silicon Valley Bank cultivated.
“Perhaps the Silicon Valley V.C. dudes feel they’re too cool for a North Carolina bank,” wrote analysts at Autonomous Research, who said they had been fielding questions from investors about the logic of the deal.
“Admittedly, there has been a strong amount of runoff from the legacy Silicon Valley Bank this quarter,” Craig Nix, the chief financial officer of First Citizens, said on a call with investors on Monday. “However, it is our intent to embrace the talents of our legacy SVB employees, embrace their business capabilities and then reiterate to their clients that First Citizens has an unwavering focus on holistic client relationships.”
As part of the deal, the F.D.I.C. will receive rights linked to the stock of First Citizens, which could be worth up to $500 million. The bank regulator estimated that the cost of Silicon Valley Bank’s failure on the government’s deposit insurance fund would be $20 billion.
First Citizens and the F.D.I.C. will share any losses on the loans included in the transaction, an arrangement that is often featured in sales of failed banks. For example, the F.D.I.C. agreed to reimburse First Citizens for half of any losses above $5 billion on the portfolio of commercial loans transferred in the deal.
Silicon Valley Bank’s 17 former branches, in California and Massachusetts, opened under ownership of the First Citizens umbrella on Monday.
Silicon Valley Bank’s former parent company, SVB Financial, filed for bankruptcy on March 17. It plans to run a separate process to sell various units, including the investment manager SVB Capital and the brokerage firm SVB Securities.
The collapse of Silicon Valley Bank set off tremors across the global financial sector as panicked depositors and investors hammered other banks.
On March 19, New York Community Bancorp acquired parts of Signature Bank a week after the F.D.I.C. seized its operations. The deal included around $38 billion in assets, including $12.9 billion in loans, purchased at a discount of $2.7 billion. The F.D.I.C. estimated that the bank’s collapse would cost the government’s deposit insurance fund $2.5 billion.
Around the same time, Switzerland’s largest bank, UBS, agreed to buy its beleaguered rival Credit Suisse for about $3.2 billion, in a deal hastily arranged by the Swiss government. With the collapse of Silicon Valley Bank spooking the markets, investors quickly lost faith in Credit Suisse, which had been plagued for years by scandals and mismanagement. The fears also spread to other banks in Europe, prompting officials to emphasize the strength of rules and strictness of oversight in the region.
Banking regulators around the world have moved to shore up confidence in the system. Central banks in the United States, Canada, Britain, Switzerland, the eurozone and Japan said they would make U.S. dollar financing more readily available. The Federal Reserve also set up an emergency lending program to provide additional support to banks.
U.S. regulators said all depositors at Silicon Valley Bank and Signature Bank would be paid back in full, and some lawmakers have since pushed for raising or even eliminating the $250,000 cap on deposit insurance. A rapid loss of deposits at midsize banks led some, like First Republic and PacWest, to tap loan facilities and seek other deals to shore up their balance sheets.
Shares of midsize lenders, which have taken a beating since Silicon Valley Bank’s collapse, jumped on Monday. First Republic rose 12 percent, and First Citizens soared more than 53 percent. After the bump, First Citizens became one of the few banks whose stock was in positive territory for the year.
Several analysts raised their price targets for the shares of First Citizens after the Silicon Valley Bank deal was announced; strategists at Janney Montgomery Scott, for instance, said the acquisition increased their estimate of the “fair value” of the bank’s shares by 60 percent.
First Citizens, based in Raleigh, N.C., has more than 500 branches across 22 states. The bank was founded in 1898, and describes itself as the largest family-controlled bank in the United States. Members of the same family have run it for three generations.
The bank said on Monday that deposits had grown by $1.3 billion since the start of the year. After the deal, the bank said it would have more than $40 billion in cash on hand.
The bank has grown significantly in recent years, in part by acquiring more than 20 government-seized lenders. The bank’s assets grew to more than $100 billion from about $20 billion a decade ago, and the Silicon Valley Bank takeover is set to double its assets at a stroke.
First Citizens was the 30th-largest bank in the United States, in terms of assets, at the end of last year. After the acquisition, it is set to enter the top 20.
The deal deepens First Citizens’ footprint in California and includes Silicon Valley Bank’s wealth management business, which catered to many technology executives who ran large parts of their personal finances through the bank.
“We have partnered with the F.D.I.C. to successfully complete more F.D.I.C.-assisted transactions since 2009 than any other bank, and we appreciate the confidence the F.D.I.C. has placed in us once again,” Frank B. Holding Jr., the chief executive of First Citizens, said in a statement.
