First Citizens BancShares will acquire Silicon Valley Bank, the California lender whose 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 had left it insolvent. The F.D.I.C., which announced the deal late Sunday, has since been looking for a buyer for the bank, either in its entirety or in pieces.
Silicon Valley Bank was the country’s 16th-largest bank when the government took it over. Its collapse was the largest bank failure in the United States since the 2008 financial crisis.
The deal for the bank, which became 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.
Silicon Valley Bank had roughly $175 billion in deposits before its collapse, an illustration of how extensive the withdrawals were before it was seized by regulators. A test for First Citizens is whether it can maintain relationships with the technology-heavy client base that Silicon Valley Bank cultivated.
“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 to the government’s deposit insurance fund would be around $20 billion.
First Citizens and the F.D.I.C. will share in any losses on the loans included in the transaction, in an arrangement that often features 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, will open under the First Citizens umbrella 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 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.
On March 19, New York Community Bancorp acquired parts of the defunct 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. Roughly $60 billion of Signature’s loans were not included in the deal, and the F.D.I.C. estimated that the bank’s collapse would cost the government’s deposit insurance fund about $2.5 billion.
Around the same time, Switzerland’s largest bank, UBS, agreed to buy its beleaguered smaller 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 had quickly lost faith in Credit Suisse, which had been plagued for years by scandals and mismanagement. The fears 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 swiftly to shore up confidence in the system. The Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank said they would work to make U.S. dollar financing more readily available. The Fed also set up an emergency lending program to help provide additional support to banks.
U.S. regulators said that all depositors at Silicon Valley Bank and Signature Bank would be paid back in full, and some lawmakers have since pushed for the cap on deposit insurance — currently set at $250,000 — to be raised or even eliminated. 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 in early trading on Monday. First Republic rose nearly 20 percent and First Citizens soared more than 40 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 “adds further low-risk growth to a healthy investment thesis,” which raises their estimate of the “fair value” of the bank’s shares about 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 have grown to more than $100 billion from about $20 billion a decade ago, and the Silicon Valley Bank takeover will double those 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. (Silicon Valley Bank was the 16th largest bank at the time.) After the acquisition, First Citizens is set to enter the top 20.
The deal also 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.
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