First Citizens Bank Strikes Deal To Acquire Collapsed Silicon Valley Bank

Silicon Valley Bank has a new home with First Citizens BancShares.

In a deal with the Federal Deposit Insurance Corporation (FDIC), First Citizens BancShares Inc. snapped up a bulk of collapsed Silicon Valley Bank, just two weeks after a panic-induced run of deposits destroyed the lender’s finances in the second biggest U.S. bank failure since the 2008 financial crisis.

The North Carolina-based bank will acquire all of SVB’s deposits, loans, and branches. First Citizens will buy SVB’s $72.1 billion of loans and assume $56.5 billion of deposits at a sizeable discount worth $16.5 billion.

“Customers of Silicon Valley Bridge Bank, National Association, should continue to use their current branch until they receive notice from First–Citizens Bank & Trust Company that systems conversions have been completed to allow full–service banking at all of its other branch locations,” the FDIC said.

The 17 branches once belonging to Silicon Valley Bank will now open as First–Citizens Bank & Trust Company on Monday, March 27, 2023.

However, approximately $90 billion of SVB securities and other assets, the majority of those being long-dates securities will remain in the receivership for disposition by the FDIC. First Citizens Bank will not acquire any of SVB’s assets, common stock, preferred stock, as well as debt or assume any other obligations of SVB Financial Group, the former parent company of the tech-friendly lender. The FDIC created Silicon Valley Bridge Bank following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation.

First Citizens also agreed to enter with the FDIC into a future loss-share transaction agreement on the commercial loans it purchased from the former Silicon Valley Bridge Bank. Both the FDIC and the North Carolina based-lender will share in the losses and potential recoveries of SVB loans covered while regulators will absorb part of the loss on a particular pool of assets, providing further downside protection against potential credit losses. The loss–share transaction is projected by the FDIC “to maximize recoveries on the assets by keeping them in the private sector. The transaction is also expected to minimize disruptions for loan customers.”

On top of the loss-sharing agreement, the FDIC will help finance the deal with a five-year, $35 billion loan. The agency also is providing a $70 billion line of credit to help cover potential deposit flights. First Citizens will not pay cash upfront for the deal, instead granting the FDIC to receive equity-appreciation rights in the lender’s common stock value with a potential value of up to nearly $500 million.

Overall, the FDIC estimates that it will take a $20 billion hit in its Deposit Insurance Fund for that the cost of SVB, according to regulators, adding the exacting cost determined once the receivership is terminated. The $20 billion figure would make it the most costly failure in the history of the FDIC insurance deposit fund, which was created in 1933. It eclipsed the $12 billion loss the FDIC took on the failure of IndyMac at the start of the 2018 financial crisis.

First Citizens won the orchestrated auction for SVB, set up by the FDIC after it seized control of the tech-friendly bank nearly two weeks ago following a twitter-fueled bank run that drained more than $40 billion in deposits. It was the winner among 18 bidders who put in 27 bids for all or part of SVB, according to FDIC Chairman Martin Gruenberg’s prepared testimony for Tuesday’s Senate banking hearing on bank failures.

First Citizens was the first financial institution that emerged as a potential buyer for the failed bank. According to sources who spoke to Bloomberg News, First Citizens previously submitted a bid for SVB immediately after it collapsed the FDIC’s sales process in the early days for SVB, submitting a very low bid for the takeover but was rejected,

Last week, the FDIC extended the bidding deadline, separating SVB into two parts — Silicon Valley Bridge Bank, a chartered national bank regulator set up after seizing SVB to take receivership of the collapsed bank assets and liabilities, and its wealth management subsidiary, Silicon Valley Private Bank. The announcement comes after the FDIC had attempted to sell SVB units together, but opted to extend the deadline after getting “substantial interest” from multiple potential buyers

The deal was “momentous” for First Citizens, CEO Frank Holding said in a conference call with investors and analysts Monday morning. The addition of Silicon Valley’s wealth unit would give First Citizens a presence in the Northeast, “one of the country’s most desirable markets.”

“The acquisition is compelling financially, strategically, and operationally,” Holding added. “We see great promise in extending to the venture and tech spaces in Silicon Valley, building on the expertise and experience we developed through years of supporting North Carolina’s own innovative hub.”

According to Piper Sandler, the North Carolina-based lender is known as one of the biggest buyers of failed U.S. banks, acquiring more than 20 FDIC-assisted deals after Holding became chairman of First Citizens in 2009. Under Holding’s tenure, First Citizens has maintained high capital ratios and avoided investing in long-dated bonds that were the focal cause in contributing to SVB value to tank leading to the bank collapse.

The 30th largest U.S. commercial bank as of December of 2022, First Citizens has an estimated $109 billion in assets and $89.4 billion in deposits. Once the SVB deal is complete, the North-Carolina-based bank will nearly double the size of its current assets, with a net total of nearly $219 billion in assets under management, transforming it to become one of the top 25 U.S. banks in the nation.

First Citizens recently completed the acquisition of CIT Group Inc. last year in a deal valued at more than $2 billion.