First Citizens Buys Most Of Silicon Valley Bank
The collapse of SVB more than a fortnight ago, and its rescue by the agency, has rattled investors and, of course, has been followed by the demise in Europe of Zurich-listed Credit Suisse. The FDIC announced yesterday that First Citizens will acquire the California-headquartered group – or most of it.
The Federal Deposit Insurance Corporation has agreed to let First Citizens Bank take over Silicon Valley Bank, which collapsed into the arms of the FDIC two weeks ago, sending shockwaves into the world’s financial markets.
First Citizens Bank & Trust Company, to give its full name, is based in Raleigh, North Carolina. The FDIC statement, issued on 26 March, said that the 17 former branches of SVB will open today [27 March] as First Citizens. Depositors of SVB will automatically be under the new bank. All deposits assumed by the firm will continued to be insured by FDIC up to the insurance limit, the federal organisation said.
The FDIC said that as of 10 March, SVB had about $167 billion in total assets and about $119 billion in total deposits. The First Citizens transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank assets at a discount of $16.5 billion. Around $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC.
There has been controversy about how US President Biden said that all deposits of SVB clients would be backed by the FDIC – a move that some say reinforces moral hazard in the US and wider banking system. Biden has, however, insisted that no taxpayers’ money will be used. The First Citizens deal comes about a fortnight after HSBC’s UK-based business bought the UK arm of SVB for the nominal price of £1 ($1.22).
Financial markets have been nervous since SVB’s implosion, and a week later, Zurich-listed Credit Suisse, which is Switzerland’ second-largest bank, has been taken over by UBS in a “shotgun marriage.” Signature Bank, a US lender with strong links to the cryptocurrency space, has also collapsed. Another medium-sized US lender, First Republic, has been under pressure.
The sagas have revived painful memories of the 2008 financial crash. A period of rising interest rates, coming after more than a decade of ultra-low rates, has put a number of financial institutions and businesses under pressure. (On the upside, higher rates also improve banks’ net interest margins.) In the case of SVB, concerns have been raised about the lack of a chief risk officer in post for more than half a year, and about how the bank’s management of its assets and liabilities could have been at fault.
The FDIC received equity appreciation rights in First Citizens BancShares, Raleigh, North Carolina, common stock with a potential value of up to $500 million, the organisation said.
The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership, the body said.
First Citizens was the 30th largest US bank as of 31 December, 2022, with $109 billion in assets, according to the Federal Reserve (source: Wall Street Journal). The deal puts the firm in the top 25 US banks in terms of assets.
With its name, Silicon Valley Bank, founded in 1983, it is symbolic of the glories of northern California’s technology powerhouse. After the slump in equities of 2022, with “Big Tech” very much in the firing line as central banks hiked rates, it appears that stresses on tech firms have hit home.
There is a private banking business of some size in the mix. In 2021, Silicon Valley Bank completed its $900 million acquisition of Boston Private, a wealth management, trust and banking services provider. This news service knows several of SVB Private’s senior figures and has interviewed them about family offices, and other aspects of the sector.