First Citizens BancShares Inc. (FCNCA.O) announced on Monday its agreement to acquire the loans and deposits of the beleaguered Silicon Valley Bank, marking an end to a chapter in the crisis of confidence that has shaken global financial markets.
The Federal Deposit Insurance Corporation (FDIC), which seized control of SVB earlier this month, revealed in a separate statement that it had obtained equity appreciation rights in First Citizens BancShares stock, potentially valued at up to $500 million as part of the transaction.
First Citizens, which has completed more FDIC-assisted transactions since 2009 than any other bank, stated that the combined entity would be resilient, with a diverse loan portfolio and deposit base. The deal stipulates that First-Citizens Bank & Trust Company, a subsidiary, will assume SVB assets of $110 billion, deposits of $56 billion, and loans of $72 billion.
The statement emphasized that a "prudent risk management approach will continue to protect customers and stockholders through all economic cycles and market conditions."
The FDIC will provide First Citizens with a line of credit for contingent liquidity purposes and an agreement to share some losses on commercial loans, offering further downside protection against potential credit losses.
Redmond Wong, Greater China Market Strategist at Saxo Markets, believes that the acquisition is positive for financial stability and the venture capital industry, but only to a certain extent.
He said, "I think First Citizens Bank's acquisition of the SVB loan book and deposits does not add much to solve the number one issue that the U.S. banking system is now facing: deposits leaving smaller banks for larger banks or money market funds."
SVB's failure on March 10 marked the largest bank collapse since the 2008 financial crisis, causing massive market disruption and exacerbating stress throughout the global banking sector. SVB's former 17 branches will now operate as Silicon Valley Bank, a division of First Citizens Bank, while SVB customers will maintain access to their accounts via websites, mobile apps, and branches.
First Citizens CEO Frank Holding Jr. said in a statement, "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."
The FDIC disclosed that First Citizen's purchase of roughly $72 billion of SVB's assets came with a $16.5 billion discount, estimating the failure's cost to its Deposit Insurance Fund (DIF) at approximately $20 billion.
