US regulators said Monday they would back a deal for regional lender First Citizens BancShares to acquire the failed Silicon Valley Bank, which will trigger an estimated $20 billion charge to a government insurance fund.
The deal comes to light after the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank on March 10 following a deposit run, amid a bank run that also brought down the SignatureBank and wiped out more than half the market value of several other US regional lenders.
The agreement is “transcendental” for First CitizensChief Executive Frank Holding told investors in a conference call on Monday. “We believe this transaction is a great outcome for depositors.”
The Raleigh, North Carolina-based lender has completed 21 government-assisted deals, including 14 since 2009, according to a Piper Sandler memo issued Monday.
The FDIC fund receives no money from US taxpayers and is instead replenished by a levy on member banks.
“The FDIC’s sale of SVB helps show that business can continue as usual for the banking industrya Wells Fargo team of analysts led by Mike Mayo said in a note sent Monday.
The FDIC hopes that the operation with First Citizens will minimize the impact on the deposit guarantee fund that it manages to finance the bailout of banks.
The sale will cost the FDIC’s deposit insurance fund about $20 billion, according to the agency. This amount adds to the $2.5 billion the FDIC lost when it sold Signature Bank to New York Community Bancorp a week ago.
First Citizens will not pay in cash for the operation. Instead, it has granted the FDIC share appreciation rights of up to $500 million, a fraction of what Silicon Valley Bank was worth before its bankruptcy.
The FDIC will be able to exercise these rights between March 27 and April 14. The amount of cash you receive will depend on the value of First Citizens stock. First Citizens shares were up 51% as of midday Monday to $883.43.
First Citizenswhich describes itself as the bank that has completed the most FDIC-sponsored transactions since 2009, said the combined company would be resilient with a diversified loan portfolio and deposit base.
Under the deal, subsidiary First-Citizens Bank & Trust Company will take over $110 billion worth of SVB assets, $56 billion worth of deposits and $72 billion worth of loans.
“Prudent risk management will continue to protect clients and shareholders in all economic cycles and market conditions”, the statement states.
First Citizens it will also receive an FDIC line of credit for contingent liquidity purposes and will have an agreement with the regulator to share some losses on commercial loans to provide further protection against potential credit losses.
Analysts see the move as positive for financial stability and the venture capital industry, but only up to a point.
“I believe that First Citizens Bank’s acquisition of SVB’s deposit and loan portfolio does little to solve the main problem facing the US banking system today: deposits being abandoned by smaller banks in favor of larger banks. large or money market fundssaid Redmond Wong, China market strategist at Sax Markets.
SVB was the biggest bank to fail since the 2008 financial crisis, when California regulators shuttered the bank on March 10, triggering massive market turmoil and heightening tensions across the global banking sector.
The crisis of confidence that triggered its collapse also bankrupted Signature Bank, whose deposits and loans will be taken over by a unit of New York Community Bancorp, and forced the second largest Swiss bank, Credit Suisse, to accept a bailout from its rival UBS.
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