First Citizens BancShares Inc has announced that it will acquire the deposits and loans of failed Silicon Valley Bank, marking the end of a chapter in the crisis of confidence that has rippled through global financial markets. The Federal Deposit Insurance Corporation (FDIC), which took control of SVB earlier this month, will receive equity appreciation rights in First Citizens BancShares stock as part of the deal, with a potential value of up to $500 million. First Citizens has stated that the transaction was structured to preserve its solid financial position and the combined company remains resilient with a diverse loan portfolio and deposit base. Under the deal, First-Citizens Bank & Trust Company will assume SVB assets of $110 billion, deposits of $56 billion and loans of $72 billion. The bank has also announced that it will receive a line of credit from the FDIC for contingent liquidity purposes and will have an agreement with the regulator to share losses to provide further downside protection against potential credit losses.
SVB was the largest bank since the 2008 financial crisis to collapse when California regulators closed the bank on March 10, sparking massive market disruption and heightened stresses across the banking sector globally. Gary Ng, senior economist at Natixis Hong Kong, has called the move positive for financial stability and the venture capital industry, although it remains unclear whether SVB’s role in the venture capital industry will be carried over by the new entity going forward. Based in Santa Clara, SVB was ranked as the 16th biggest lender in the U.S. at the end of last year, with about $209 billion in assets.
According to the FDIC, the purchase of about $72 billion of SVB’s assets came at a discount of $16.5 billion. It 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. Approximately $90 billion in securities and other assets from SVB will remain in receivership for disposal, the regulator added.
From Monday, SVB’s 17 former branches will begin operating as Silicon Valley Bank, a division of First Citizens Bank. First Citizens has around $109 billion in assets and total deposits of $89.4 billion.
