First Citizens Bank has acquired the remaining assets, deposits, and loans of Silicon Valley Bank (SVB) after it failed earlier this month and sparked a crisis. The acquisition marks a milestone moment in the banking crisis, and investors were relieved to hear that the remnants of SVB had found a new home. First Citizens’ shares surged more than 47% in morning trading, wiping out the losses the bank had incurred since SVB’s collapse and bringing its shares to their highest point since November. In addition, other bank stocks also rose in morning trading, indicating that the crisis may finally be beginning to ease.
SVB’s Collapse and Its Impact on the Banking System
The collapse of SVB, followed quickly by the collapse of Signature Bank, roiled global financial markets and triggered a collapse in confidence among investors and depositors in other vulnerable banks. However, 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.
The Deal and Its Terms
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 Federal Deposit Insurance Corporation (FDIC). The bank has also entered into an agreement with the FDIC that will protect it against potential losses on the SVB commercial loans it is buying.
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. 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.
The fallout from the sale of those Treasuries created problems for SVB and the overall banking system. 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 down SVB 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.
Outlook for the Future
With the purchase of SVB’s assets, deposits, and loans, First Citizens hopes to win back some of the SVB customers who withdrew their deposits because they were worried about losing access to their needed cash. First Citizens is committed to building on and preserving the strong relationships that SVB’s Global Fund Banking business has with private equity and venture capital firms.
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Moreover, First Citizens’ CFO, Craig Nix, has told investors that deposits have increased by $1.3 billion at First Citizens this quarter, even before this deal was announced. The bank is also confident that it can manage any potential fallout from the deal, having arranged a line of credit of up to $70 billion from the FDIC. It expects to have deposits of $145 billion in the combined bank, and the deal is expected to help restore confidence in the banking system as a whole.
