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First Citizens BancShares Inc. agreed to buy Silicon Valley Bank after a run on deposits wiped out the company in the biggest U.S. bank failure in more than a decade.
The deal to settle SVB’s fate could help tamp down some of the turmoil that has engulfed the financial world, and shares of regional banks rallied on the news, with First Citizens up as much as 44%. The Federal Deposit Insurance Corp. seized SVB earlier this month amid concern that bank runs could spread.
The acquisition transforms First Citizens into one of the top 15 US banks, according to Bloomberg Intelligence, with help from some favorable terms. First Citizens is buying about US$72 billion of SVB’s assets at a discount of $16.5 billion, according to an FDIC statement.
This leaves about $90 billion in securities and other SVB assets in the hands of the FDIC, and an estimated cost of the failure to the Deposit Insurance Fund of about $20 billion. Meanwhile, the FDIC gets equity appreciation rights in First Citizens with a potential value of $500 million.
Silicon Valley Bank unraveled in less than 48 hours earlier this month after outlining a proposal to shore up capital. When that plan failed, a run on deposits forced the lender to take huge losses on sales of securities that had lost value as interest rates climbed. Shares of regional lenders across the U.S. have plummeted amid concern they too could fall victim to the same threats that destroyed SVB.
“This has been a remarkable transaction in partnership with the FDIC that should instill confidence in the banking system,” said Frank Holding Jr., chief executive officer of Raleigh, North Carolina-based First Citizens. Bloomberg News reported earlier that First Citizens was nearing a deal.
First Citizens said it will assume $56 billion in deposits, and 17 legacy branches will begin operating as Silicon Valley Bank, a division of First Citizens. There will be no immediate change to customer accounts.
Holding said SVB has complementary businesses, including private banking, wealth and small-business banking. The deal will also extend First Citizens’ reach into venture capital and technology businesses, he said.
“We are excited about layering on the expertise that SVB brings,” he said. “We will have strong liquidity and strong capital.”
Regulators had been racing to lock down a deal for all or parts of the bank in a bid to cover the uninsured deposits of its startup customers, but an earlier auction attempt passed without a buyer.
Then the FDIC extended the bidding process after receiving “substantial interest” from multiple potential acquirers. To simplify the process and expand the pool of bidders, the FDIC allowed parties to submit separate offers for the Silicon Valley Private Bank subsidiary and Silicon Valley Bridge Bank NA — the firm created by the FDIC after SVB went into receivership.
Valley National Bancorp also submitted a bid last week, people familiar with the matter have said.
First Republic Bank led a rally across regional lenders in early New York trading on Monday as sentiment improved following a Bloomberg report that U.S. authorities are considering more support for banks.
The government had taken extraordinary measures to shore up confidence in the financial system after SVB’s collapse, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the entire nation’s deposits.
Shares of Santa Clara, California-based SVB Financial Group, Silicon Valley Bank’s parent, plummeted after the firm outlined plans for an equity offering, and disclosed it suffered a $1.8 billion loss on the sale of securities and a slowdown in funding at the venture capital-backed firms it serves. The bank was forced to abandon its plan to raise capital as funds including Founders Fund, Coatue Management, Union Square Ventures and Founder Collective began advising their portfolio companies to move money out of SVB.
First Citizens previously submitted a bid for SVB immediately after it collapsed, according to people familiar with the matter.
Its interest in an acquisition has stumped some observers, who questioned whether First Citizens has the wherewithal to take on the second-largest FDIC-assisted bank failure in U.S. history. First Citizens was the 30th largest commercial bank in the US by assets at the end of 2022, according to Fed data.
But the bank has experience buying broken rivals. It acquired more than 20 FDIC-assisted banks since 2009, striking a series of deals after the financial crisis from Washington to Wisconsin to Pennsylvania.
First Citizens also completed the acquisition of CIT Group Inc. last year in a deal valued at more than $2 billion.