US lender First Citizens to acquire assets of failed Silicon Valley Bank
▶ The transaction includes the purchase of about $72 billion of SVB’s assets at a discount of $16.5 billion
First Citizens Bank & Trust will acquire Silicon Valley Bank, which collapsed earlier this month, the Federal Deposit Insurance Corporation has said.
First Citizens entered into a purchase and assumption agreement for all deposits and loans held by SVB. Its 17 branches were set to reopen under the First Citizens Bank & Trust brand yesterday.
SVB was the 16th largest US bank, with about $209 billion in total assets before its collapse. As of March 10, it had approximately $167 billion in total assets and about $119 billion in total deposits. The FDIC had created a bridge bank to hold the deposits and assets of SVB’s former clients, most of which were exposed to the tune of millions of dollars, far above the $250,000 threshold that the FDIC insures.
As part of the transaction, First Citizens will purchase about $72 billion worth of SVB assets at a discount of $16.5 billion, the FDIC said yesterday.
About $90 billion in securities and other assets will remain in receivership.
The FDIC also received equity appreciation rights in the common stock of First Citizens with a potential value of up to $500 million.
SVB depositors will automatically become depositors of First Citizens Bank and their funds will continue to be insured by the FDIC up to the insurance limit.
“We have partnered with the FDIC to successfully complete more FDIC-assisted transactions since 2009 than any other bank, and we appreciate the confidence the FDIC has placed in us once again,” said Frank Holding Jr, chairman and chief executive of First Citizens Bank and Trust.
“We look forward to building relationships with our new customers and positioning our company for continued success as we affirm our commitment to support the integrity of our nation’s banking system.”
According to the transaction, the FDIC, as receiver, and First Citizens “will share in the losses and potential recoveries on the loans covered by the lossshare agreement”.
“The loss-share transaction is projected to maximise recoveries on the assets by keeping them in the private sector,” the FDIC said.
“The transaction is also expected to minimise disruptions for loan customers.”
The FDIC estimates the cost of SVB’s failure to its Deposit Insurance Fund to be about $20 billion. The exact cost will be determined when the FDIC terminates the receivership.
California-based SVB, which started in 1983, rode the wave of America’s local high-technology economy during that decade and rose further during the dotcom era of the 1990s, when technology start-ups started growing.
Its status as the go-to bank for technology entrepreneurs and start-ups continued until its final years.
SVB became the biggest bank to fail in US history after Washington Mutual’s collapse in 2008, which, in turn, triggered the global financial crisis.
While SVB’s crash triggered broader concerns about the health of the US banking sector, Goldman Sachs said last week that “a repeat of the turmoil [of] 15 years ago seems unlikely”.
Even though the collapse is significant, it is “a very idiosyncratic situation”, said Richard Ramsden from the investment bank’s research team. “You had a bank that had taken a lot of interest rate or duration risk on their portfolio – coupled with the fact that they had a very concentrated deposit base that was very exposed, obviously, to the venture capital community and venture capital portfolio companies that were experiencing these very significant outflows,” Mr Ramsden said in a podcast called Exchanges at Goldman Sachs.