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First Citizens to Acquire Silicon Valley Bank after Striking Deal with FDIC

According to the Federal Deposit and Insurance Corporation, First Citizens Bank is set to acquire the embattled state-chartered commercial bank Silicon Valley Bank (SVB). In a recent statement, the FDIC revealed that the bank holding company would acquire all deposits and loans of SVB. According to the deal, 17 former SVB branches will reopen as branches of First Citizens Bank and Trust Company. This development takes effect today, March 27th, with all SVB depositors, automatically becoming depositors of First Citizens Bank.

Just over two weeks ago, Silicon Valley reported roughly $167 billion in assets and approximately $119 billion in deposits.

The deal to acquire SVB saw First Citizens and the FDIC enter into a “loss-share transaction.” This agreement sees the government corporation absorb part of the losses on a certain pool of assets. As the FDIC explained:

“The loss–share transaction is projected to maximize recoveries on the assets by keeping them in the private sector. The transaction is also expected to minimize disruptions for loan customers.”

The FDIC also revealed that First Citizens would acquire approximately $72 billion of Silicon Valley assets at a $16.5 billion discount. Furthermore, an additional $90 billion worth of securities and other assets remain “in receivership for disposition by the FDIC.” The FDIC statement also disclosed that the government corporation “received equity appreciation rights in First Citizens BancShares common stock.” The potential value of these rights amounts to $500 million.

Initial estimates state that Silicon Valley’s bankruptcy cost the FDIC Deposit Insurance Fund around $20 billion. However, the exact cost will be established upon the FDIC’s conclusion of the receivership.

First Citizens’ chief executive officer Frank Holding Jr discussed its involvement with the FDIC, saying:

“We appreciate the confidence the FDIC has placed in us. First Citizens has a proud history of growing organically and through strategic acquisitions.”

The First Citizens CEO also added that he plans to enhance Silicon Valley’s business with private equity and venture capital firms.

It is unclear how many former clients of SVB will remain with First Citizens following the latter’s acquisition. This puzzle is valid because Silicon Valley lost several customers to other traditional and fintech neobanks during its chaotic bank run.

Several banks reportedly submitted bids or considered buying SVB following its collapse earlier this month. In the ensuing period, the FDIC, as the failed bank’s appointed receiver, tried auctioning it off. The process entailed two separate auctions for Silicon Valley’s assets, one for the bank’s traditional deposits unit. The other auction was for SVB’s private bank, which operated under its retail operations and served high-net-worth individuals.

Silicon Valley Bank sustained an insolvency crisis and eventually collapsed on March 10th after suffering a bank run. The bank’s demise makes it the second-largest bank failure in the United States and the most significant since the 2007/08 financial crisis.

SVB is also one of three US banks to suffer severe financial distress in March. The other two are Signature Bank and First Republic, with the former also collapsing while the latter entered liquidation. As it stands, a banking coalition led by JPMorgan (NYSE: JPM) plans to rescue First Republic.

First Citizens to Acquire Silicon Valley Bank after Striking Deal with FDIC

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