U.S. backstops Silicon Valley Bank sale to First Citizens

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US regulators said Monday they would support a deal for regional lender First Citizens BancShares to acquire failed Silicon Valley bank, resulting in an estimated $20 billion loss for a government-run insurance fund.

The deal comes after the Federal Deposit Insurance Corporation (FDIC) acquired Silicon Valley Bank on March 10 after depositors rushed to withdraw their money in a banking round that also led to the collapse of Signature Bank and wiped out more than half of the market value of many other banks. US regional lenders.

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CEO Frank Holding told investors on a conference call Monday that the deal was “very significant” for First Citizens. “We believe this deal is a great result for depositors.”

The Raleigh, North Carolina-based lender has completed 21 deals with government assistance, including 14 since 2009 when the holding’s CEO was named chairman, according to a Piper Sandler memo Monday.

The FDIC fund does not take US taxpayer money and instead is replenished with tax on member banks.

“FDIC’s sale of SVB helps show business can continue as usual in the banking industry,” a team of Wells Fargo analysts led by Mike Mayo said in a note Monday.

First Citizens will not cash in advance for the deal. Instead, it said it had awarded equity appreciation rights in its shares to the FDIC that could be worth up to $500 million — a fraction of what the Silicon Valley bank was worth before it failed.

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The FDIC will be able to exercise these rights between March 27th and April 14th. The amount of cash you receive depends on the value of your first citizen inventory.

First Citizen shares jumped 50%.

First Citizens will receive the Silicon Valley bank’s $110 billion in assets, $56 billion in deposits and $72 billion in loans as part of the deal.

The FDIC said the $72 billion purchase of SVB assets came at a discount of $16.5 billion.

First Citizens also acquired SVB Private, which the FDIC was trying to sell separately last week and in which Citizens Financial Corp. has expressed interest.

First Citizens said that SVB’s private wealth business “is a natural fit for our high, sophisticated level of high net worth client service and approach.”

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line of credit

First Citizens will also receive a line of credit from the FDIC for emergency liquidity purposes and will have an agreement with the regulator to share some of the losses on business loans to protect them from potential credit losses.

said Redmond Wong, Greater China Market Strategist at Saxo Markets.

Headquartered in Santa Clara, the Silicon Valley bank was the 16th largest lender in the United States at the end of last year, with assets of about $209 billion.

The collapse of SVB Bank triggered the worst banking crisis since 2008, plummeting bank stocks globally. Shares in European banks fell sharply on Friday, led by Germany’s Deutsche Bank, raising authorities’ concerns about a possible credit crunch.

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Shares of US banks – large and medium – rose on Monday.

Venture Capital Business

First Citizens said SVB customers will continue to access their accounts through websites, mobile apps, and branches. It added that employees will be retained in the acquired business.

First Citizens said the deal will accelerate First Citizens’ expansion in California and give it wealth management capabilities in the northeastern United States.

“We are committed to building and maintaining strong relationships that connect the global SVB fund banking business with private equity and venture capital firms,” ​​the holding said in a statement.

First Citizens have about $109 billion in assets and total deposits of $89.4 billion. The combined company will have $219 billion in total assets and $145 billion in deposits, according to the First Citizens offering.

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The FDIC estimates the cost of the Silicon Valley Bank’s Deposit Insurance Fund (DIF) failure at nearly $20 billion. The exact cost will be determined when the FDIC ends the receivership.

That’s on top of the $2.5 billion loss to the fund the FDIC incurred when it sold Signature Bank to New York Community Bancorp one week ago.

Analysts at Wells Fargo said the loss would be “handled by the banking industry alone,” bringing the fund roughly a third below its statutory minimum.

The regulator added that approximately $90 billion in securities and other assets of SVB will remain in receivership for disposal.

(Reporting by Scott Murdoch in Sydney and Mahnaz Yasmin in Bengaluru; Additional reporting by Xie Yu and Selina Lee in Hong Kong, Jahnavi Nedumulu and Tommy Rigiore-Wilkes in London and Lannan Nguyen in New York; Editing by Edwina Gibbs, Lannan Nguyen and Nick Zieminski)