First Citizens BancShares will acquire Silicon Valley Bank, the California lender whose collapse this month sent shockwaves through the financial sector.
The Federal Deposit Insurance Corporation took over a Silicon Valley bank on March 10, after a run on deposits left it insolvent. The Federal Deposit Insurance Corporation, which Announce the deal Late Sunday, a buyer has been sought since then for the bank, either in its entirety or in pieces.
Silicon Valley Bank was the 16th bank in the country when it was taken over by the government. Its collapse was the largest banking failure in the United States since the 2008 financial crisis.
The deal for the bank, which became the Silicon Valley Bridge Bank after it was seized by the Federal Insurance Corporation, included the purchase of loans worth about $72 billion, with a discount of $16.5 billion, and the transfer of deposits worth $56 billion. Nearly $90 billion in Silicon Valley bank securities and other assets were not included in the sale, and remained under the control of the FDIC.
The bank’s regulator will receive rights associated with the shares of First Citizens, which could be worth up to $500 million. The FDIC has estimated that the cost of the Silicon Valley bank’s failure to the GDF would be about $20 billion.
First Citizens and the FDIC will share any losses on the loans included in the transaction, at ranking which often appears in failed bank sales. For example, the FDIC agreed to reimburse First Citizens for half of any losses over $5 billion on the portfolio of commercial loans transferred in the deal.
17 former Silicon Valley bank branches, in California and Massachusetts, will open under the umbrella of First Citizen on Monday. Its depositors will automatically become customers of First Citizens.
Silicon Valley Bank’s former parent company, SVB Financial, filed for bankruptcy on March 17. It plans to conduct a separate operation to sell off various units, including investment manager SVB Capital and brokerage firm SVB Securities.
The collapse of the Silicon Valley bank sent tremors through the global financial sector.
On March 19, New York Community Bancorp acquired parts of the defunct Signature Bank a week after its operations were taken over by the FDIC. The deal included assets of about $38 billion, including $12.9 billion in loans, which were purchased at a discount of $2.7 billion. Nearly $60 billion in Signature loans were not included in the deal, and the FDIC estimated that the bank’s collapse would cost the GDF about $2.5 billion.
Around the same time, Switzerland’s largest bank, UBS, agreed to buy its smaller, embattled rival Credit Suisse for about $3.2 billion, in a deal hastily arranged by the Swiss government. With the collapse of the Silicon Valley bank spooking markets, investors quickly lost faith in Credit Suisse, which has been plagued for years by scandals and mismanagement. The concerns have spread to other banks in Europe, prompting officials to stress the strength of rules and the tightening of supervision in the region.
Banking regulators around the world moved quickly to boost confidence in the system. The Federal Reserve, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank said they would work to make US dollar funding more readily available. The Fed has also put in place an emergency lending program to help provide additional support to banks.
US regulators have said all depositors at Silicon Valley Bank and Signature Bank will be paid in full, and some lawmakers have since pushed for the deposit insurance cap — currently set at $250,000 — to be raised or even eliminated. The rapid loss of deposits at mid-sized banks has led some, such as First Republic and PacWest, to take advantage of loan facilities and seek other deals to shore up their balance sheets.
Mid-cap bank stocks, which have been battered since the Silicon Valley bank collapse, jumped in pre-market trading on Monday. First Citizens gained about 40 percent and First Republic stock rose 20 percent.
First Citizens, based in Raleigh, North Carolina, has more than 500 chapters in 22 states. Founded in 1898, the bank describes itself as the largest family-run bank in the United States. Members of the same family have run it for three generations.
On Monday, the bank said deposits have increased by $1.3 billion since the start of the year. After the deal, the bank will have more than $40 billion in cash on hand.
The bank has grown exponentially in recent years in part by acquiring more than 20 lenders that had been seized by the government. The bank’s assets have grown to more than $100 billion from about $20 billion a decade ago, and the acquisition of the Silicon Valley bank would double those assets in one fell swoop.
First Citizens ranked as the 30th largest bank in the United States, by assets, at the end of last year. (Silicon Valley Bank was the 16th bank at the time.) After the acquisition, First Citizens is slated to enter the top twenty.
The deal also deepens First Citizen’s footprint in California and includes the bank’s Silicon Valley wealth management business, which caters to the many tech executives who manage large portions of their personal finances through the bank.
“We have partnered with the FDIC to successfully complete more FDIC-backed transactions since 2009 than any other bank, and we appreciate the trust the FDIC has placed in us once again,” Frank B. Holding Jr., CEO of First Nationals, said in a statement.