FDIC Announces North Carolina-Based First Citizens Acquires Silicon Valley Bank

London/Oakland, California — In a milestone moment for the banking crisis, North Carolina-based First Citizens Bank has purchased the remaining assets, deposits, and loans of Silicon Valley Bank (SVB), the US lender that failed earlier this month and kicked off the crisis, the Federal Deposit Insurance Corporation (FDIC) said in a statement late Sunday (March 26).

Investors were relieved to hear that the remnants of SVB have finally found a strong home, as it could mean the crisis is beginning to ease.

Shares of First Citizens (FCIZP) soared more than 47% in morning trading — not only wiping out the losses First Citizens stock suffered since SVB’s collapse but also bringing the bank’s taking shares to their highest point since November. Other bank stocks also rose in morning trading.

And the KBW Nasdaq Bank Index, which had lost more than 20% since the start of the banking crisis, was up 4% in early trading Monday (March 27) before moderating to a 2% gain later in the morning.

As of Monday, 17 branches of SVB will begin operating as “Silicon Valley Bank, a division of First Citizens Bank,” First Citizens said. But SVB customers should continue to use their current branch until they hear from First Citizens.

The collapse of SVB followed in quick succession by Signature Bank — another US regional lender — roiled global financial markets and triggered a collapse in confidence among investors and depositors in other vulnerable banks.

The combined bank

Merely several weeks ago, such a deal would have seemed unlikely.

Headquartered in Raleigh, North Carolina, First Citizens — offers general banking services through more than 550 branches and offices in 23 states — was about half the size of SVB at the end of last year. With assets of $109 billion as of December 31, First Citizens was the 30th largest US bank according to the Federal Reserve.

SVB, by contrast, had assets of $209 billion at that time and was the nation’s 16th-largest bank. In the wake of its collapse regulators transferred SVB’s deposits and loans to a bridge bank.

With the purchase of most of SVB’s business, First Citizens will now be slightly larger than SVB had been before its collapse, with an estimated $219 billion in assets.

As part of the deal, First Citizens is not taking on most of the $90 billion in US Treasuries that SVB was holding when regulators took over. It was the drop in value of those bonds — rather than losses on the loans that SVB had made — that created problems for SVB and the overall banking system.

Bank run

The Treasuries SVB held had fixed interest rates at what is now below market value, thanks to the Federal Reserve’s policy of steadily raising interest rates over the last year.

So when SVB announced it had to sell about $21 billion of those Treasuries at a $1.8 billion after-tax loss to cover customers’ withdrawals, it essentially sparked a run on the bank.

Regulators shut SVB down on Friday, March 10, after clients withdrew $42 billion in a single day. It was the second-largest bank failure in US history, after only Washington Mutual in 2008. In an extraordinary move, the FDIC agreed to guarantee all SVB deposits — including those above the $250,000 per account that is usually insured.

Now, with the purchase, First Citizens is receiving SVB assets of $110 billion, deposits of $56 billion, and loans of $72 billion, based on the latest information from the FDIC. The bank has also entered into an agreement with the FDIC that will protect the bank against potential losses on the SVB commercial loans it is buying.

“We are committed to building on and preserving the strong relationships that legacy SVB’s Global Fund Banking business has with private equity and venture capital firms,” said First Citizens chairman and CEO Frank Holding in a statement.

The bank’s chief financial officer, Craig Nix, told investors on a call Monday morning that the bank hopes to win back some of the SVB customers who withdrew their deposits because they were worried about losing access to their needed cash.

While some smaller and mid-size banks have also lost deposits since the start of the banking crisis, Nix said deposits have increased by $1.3 billion at First Citizens this quarter even before this deal was announced.

But should there be a run on deposits at the combined bank in the wake of this deal, First Citizens also announced it had arranged a line of credit of up to $70 billion from the FDIC so that it will have any cash needed. It expects to have deposits of $145 billion in the combined bank.

First Citizens is buying the $72 billion in SVB loans for about $55 billion, a 29% discount, the FDIC said.

“The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership,” the regulator said.

Switzerland’s second-biggest bank, Credit Suisse (CS), has been the largest casualty of the current crisis. It had to be rescued a week ago by bigger rival UBS (UBS) in an emergency takeover orchestrated by the Swiss government.