Two weeks after Silicon Valley Bank’s collapse sent shockwaves through global financial markets, a buyer has stepped up to take the failed lender’s deposits and loans off the federal government’s hands.
First Citizens agreed to buy about $72 billion of SVB’s assets—a discount of $16.5 billion—from the Federal Deposit Insurance Corporation (FDIC), which seized control of Silicon Valley Bank after it buckled under the weight of a bank run. Around $90 billion in securities and other assets will remain in receivership until the FDIC distributes them to the new owner, the federal agency announced Sunday.
As a point of comparison, SVB had $211.8 billion in assets at the end of last year and around $167 billion when the bank failed on March 10.
Depositors automatically became customers of First–Citizens Bank & Trust Company on Monday, and the bank’s stock price soared more than 40% in morning trading. The FDIC will continue to insure its deposits up to the $250,000 limit.
As part of the deal, the FDIC will receive equity appreciation rights in First Citizens BancShares—a potential value of up to $500 million. Essentially, that means the federal agency can benefit from the boost in the new owner’s stock price.
SVB’s failure, which ranked as the largest since the Great Recession, rocked markets and shook public trust in regional lenders like First Republic Bank.
First Citizens Bank, headquartered in Raleigh, North Carolina, ended last year as the country’s 30th largest bank, with 7,000 or so employees and assets totaling about $109.31 billion.
Much of its deposit base is on the East Coast, and the purchase provides a lucrative inroad to SVB’s tech-heavy clientele. First Citizens has purchased a string of failed banks assets since the 2008 financial collapse, including Harvest Community Bank in New Jersey, First Regional Bank in Los Angeles and First CornerStone Bank in Pennsylvania.
Meanwhile, Silicon Valley Bank parent company SVB Financial has filed for bankruptcy and plans to auction off parts of the business, like brokerage unit SVB Securities and investment division SVB Capital.
The FDIC and First Citizens also entered into a loss-sharing relationship on the commercial loans acquired by SVB. The agency and SVB’s buyer will share the losses and potential recoveries on loans covered by the agreement.
This arrangement aims to lessen the risk for the FDIC by moving the lender back to the private market.
Customers with deposits with Silicon Valley Bank as it transitions from FDIC control to First Citizen should stick with their regular branches until notified otherwise.