What You Need To Know!
- First Citizens BancShares Inc. is set to acquire the deposits and loans of Silicon Valley Bank, which failed earlier this month.
- The FDIC has received equity appreciation rights in First Citizens BancShares stock worth up to $500 million as part of the deal.
- The move is expected to benefit financial stability and the venture capital industry, but may not address the issue of deposits leaving smaller banks for larger banks or money market funds.
First Citizens BancShares Inc. has announced plans to acquire Silicon Valley Bank, which failed earlier this month, in a deal that will see unit First–Citizens Bank & Trust Company assume SVB assets of $110 billion, deposits of $56 billion and loans of $72 billion.
The Federal Deposit Insurance Corporation (FDIC) has received equity appreciation rights in First Citizens BancShares stock with a potential value of up to $500 million as part of the deal. First Citizens, which has completed more FDIC-assisted transactions since 2009 than any other bank, said the combined company would have a diverse loan portfolio and deposit base.
As part of the agreement, First Citizens will receive a line of credit from the FDIC for contingent liquidity purposes and will have an agreement with the regulator to share some losses on commercial loans to provide further downside protection against potential credit losses.
The deal is expected to accelerate First Citizens’ expansion in California and give it wealth management capabilities in the northeast of the United States.
Analysts have said that the move is positive for financial stability and the venture capital industry but may not address the issue of deposits leaving smaller banks for larger banks or money market funds.
“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.” Redmond Wong, Greater China market strategist at Saxo Markets, said,
From Monday, SVB’s 17 former branches will begin operating as Silicon Valley Bank, a division of First Citizens Bank, and SVB customers will continue to be able to access their accounts through websites, mobile apps, and branches, according to First Citizens.
The FDIC said First Citizen’s purchase of about $72 billion of SVB’s assets came at a discount of $16.5 billion. The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion.