Shares of regional banks rose Monday after a late-night agreement by First Citizens to buy the assets of failed lender Silicon Valley Bank.
Updated at 6:52 AM EST
First Citizens BancShares (FCNCA) – Get a free reportIt agreed to buy failed lender Silicon Valley Bank late Sunday in a deal that could bolster regional lenders and boost confidence in the country’s broader financial system.
North Carolina-based First-Citizens Bank & Trust will take on about $56 billion in Silicon Valley bank deposits and secure the emerging technology lender’s $72 billion loan book at a discount of about $165 billion. The group said it would also receive an additional line of credit from the Federal Deposit Insurance Corporation for what it called “emergency liquidity purposes.”
In a nod to last week’s purchase of Signature Bank New York Community Bancorp, First Citizens has agreed to provide $500 million in an equity enhancement to the FDIC, which will eventually receive about $20 billion from its intervention in Silicon Valley Bank earlier this month. .
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“We look forward to building relationships with our new clients and positioning our company for continued success as we underscore our commitment to upholding the integrity of our country’s banking system,” said Frank Holding, CEO of First Citizens. “We are committed to building and maintaining strong relationships that connect SVB’s Global Fund banking business with private equity and venture capital firms.”
Shares of First Citizen closed at $582.55 each Friday on the Nasdaq, after dropping about 1.11% in the session to extend the stock’s year-to-date decline to about 23.2%. The stock was ticked up 24.9% in pre-market trading to indicate an opening bell price of $727.58 per share.
The buying provided some support for regional bank stocks in pre-market trading, too, after data emerged late Friday that showed deposits with smaller lenders fell by the most on record in SVB Financial’s March 10 crash.
Bloomberg also reported that US officials are exploring ways the Federal Reserve could expand its emergency lending facility to regional banks in order to buy more time for distressed lenders, First Republic in particular, to shore up their balance sheets.
Deposits by smaller US banks, defined as those sitting outside the top 25 by asset size, fell by $119 billion to $5.46 trillion during the seven-day period that ended March 15, according to Fed data. Some of that flight found its way to the larger banks, with data showing that deposits at the largest institutions rose $67 billion to $10.74 trillion.
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Although it’s not clear from Fed data, much of the cash leaving smaller banks could find its way into money market funds, according to Bank of America’s “Flow Show,” which suggested more than $300 billion in addition. Over the past month, bringing the total tally to a record $5.1 trillion.
The first republic (FRC) – Get a free reportThe stock was up 25.2% in pre-market trading to indicate an opening bell price of $15.47 per share. backquest (PACW) – Get a free reportShares jumped 8.6 percent to $10.37 each, while Western Alliance Bancorp jumped. (WALPL) It gained 5.1% to $34.75 each.
Meanwhile, Minneapolis Federal Reserve Bank President Neel Kashkari warned that a dip in lending from banks worried about their deposit base — and access to federal lending facilities — could eventually push the economy into recession.
“It definitely brings us closer,” he told CBS’ “Face The Nation.” “What is not clear to us is the extent to which these banking pressures lead to a widespread credit crunch. This credit crunch will slow the economy.”