First Citizens Bancshares will buy Silicon Valley Bank, the California lender whose collapse sent shock waves across the financial sector this month.
The Federal Deposit Insurance Corporation took control of the Silicon Valley bank on March 10 after the deposits went bankrupt. FDIC, which announced the agreement As of late Sunday, the bank is looking for a buyer in whole or in pieces.
When the government took over Silicon Valley Bank was the 16th largest bank in the country. Its collapse was the biggest bank failure in the US since the 2008 financial crisis.
The deal for the bank, which became Silicon Valley Bridge Bank after the FDIC takeover, included about $72 billion in borrowings, a $16.5 billion write-down, and a $56 billion deposit swap. About $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 regulator will acquire rights attached to First Citizen’s stake, which could be worth up to $500 million. The FDIC estimated that the cost of Silicon Valley Bank’s failure to fund the government’s deposit insurance fund would be about $20 billion.
First Citizens and the FDIC will share in losses on loans included in the transaction arranged This often occurs in the sale of failed banks. For example, the FDIC agreed to reimburse First Citizens for half of the more than $5 billion in losses on its portfolio of commercial loans transferred in the deal.
17 former Silicon Valley bank branches in California and Massachusetts will open under the Citizens umbrella starting Monday. Its depositors will automatically become customers of First Citizens.
SVB Financial, the former parent company of Silicon Valley Bank, filed for bankruptcy on March 17. Investment manager SVB Capital and brokerage firm SVB Securities also plan to conduct a separate process to sell the various units.
The collapse of the Silicon Valley bank sent shockwaves through the global financial sector.
On March 19, New York Community Bancorp bought parts of the defunct Signature Bank, a week after the FDIC took over its operations. The deal includes approximately $38 billion in assets, including $12.9 billion in debt purchased at a $2.7 billion discount. About $60 billion of Signature’s loans were not included in the deal, and the FDIC estimated the bank’s collapse would cost the government’s deposit insurance fund $2.5 billion.
At the same time, Switzerland’s biggest bank, UBS, agreed to buy its smaller rival Credit Suisse for about $3.2 billion in a deal hastily arranged by the Swiss government. The collapse of the Silicon Valley bank spooked markets, and investors quickly lost faith in Credit Suisse, which has been plagued by scandals and mismanagement for years. Fears have spread to other banks in Europe, prompting authorities to stress the strength of rules and tightening of supervision in the region.
Banking regulators around the world have 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 have said they are working to make US dollar financing more readily available. The central bank has also set up an emergency lending program to provide additional support to banks.
U.S. regulators have said all depositors at Silicon Valley Bank and Signature Bank will be refunded in full, and some lawmakers have urged the cap on deposit insurance — currently set at $250,000 — to be raised or eliminated. The rapid loss of deposits at mid-sized banks has led some, such as First Republic and Pacwest, to tap credit facilities and seek other deals to bolster their balance sheets.
Shares of mid-sized lenders, which took a hit after the collapse of Silicon Valley Bank, rose in premarket trading on Monday. First Citizens rose by about 40 percent and First Republic by 20 percent.
First Citizens, based in Raleigh, NC, has more than 500 branches in 22 states. The bank was founded in 1898, and describes itself as the largest family-owned bank in the United States. It has been run by the same family for three generations.
Deposits have increased by $1.3 billion since the start of the year, the bank said on Monday. After the deal, the bank will have more than $40 billion in cash on hand.
The bank has grown significantly in recent years by acquiring more than 20 government-captured lenders. The bank’s assets have grown from $20 billion a decade ago to more than $100 billion, and the acquisition of Silicon Valley Bank will more than double those assets in one stroke.
First Citizens was the 30th largest bank in the U.S. by assets at the end of last year. (Silicon Valley Bank was the 16th-largest bank at the time.) After the acquisition, First Citizens is poised to break into the top 20.
The deal deepens First Citizens’ footprint in California and also includes Silicon Valley Bank’s wealth management business, which runs their personal finances through the bank for many tech executives.
“We have partnered with the FDIC to successfully complete more FDIC-assisted transactions since 2009 than any other bank, and we appreciate the FDIC’s confidence in us again,” Frank B. Holding, Jr., chief executive of First Citizens, said in a statement.