First Citizens’ Acquisition Of Silicon Valley Bank Is Supported By The US.

A $20 billion damage to a government-run insurance fund would have resulted from regional lender First Citizens BancShares buying the insolvent Silicon Valley Bank. Nonetheless, the US government declared they would back the agreement. The agreement comes after the FDIC (Federal Deposit Insurance Corporation) took control of Silicon Valley Bank on 2023.3.10 because of a bank run that gave rise to the collapse of another bank. This second great bank is none other than Signature Bank, which erased more than half the market value of several other regional lenders in the super country, the United States.

CEO Frank Holding highlighted and mentioned this pact to be a great one for First Citizens during an investor conference call. They think the depositors will benefit greatly from this pact. A Piper Sandler letter claims that the Raleigh, North Carolina-based lender has completed twenty-one such acquisitions with the help of the government, including 14 since CEO Holding was named chairman in 2009.

Instead of taking money from American taxpayers, a levy on participating banks is used to replenish the FDIC fund. According to a group of Wells Fargo critics led by Mike Mayo, the FDIC’s sale of SVB facilitates the banking sector to continue its work.

First Citizens won’t make a cash payment for the transaction. The FDIC had been granted equity appreciation rights on its shares, the company countered. The value of these shares may reach $500 million. This value is considered a miniature amount of the value of SVB before its ultimate fall. These privileges may be used by FDIC from March 27 to April 14. The amount of money it receives will rely on the market value of First Citizens’ stock. First Citizens stock soared by fifty percent.

The following will be transferred to First Citizens.

• $110 billion in assets.
• $56 billion in deposits.
• $72 billion in loans. 

If the data of FDIC is considered, SVB’s assets were bought at a $16.5 billion discount for $72 billion. First Citizens also used its money to purchase SVB Private, which the FDIC risked selling separately last week and in which Citizens Financial Corp had shown interest.

According to First Citizens, SVB’s Private Wealth business is a natural match for its upscale, sophisticated strategy for catering to HNIs.

Line of credit.

As further protection against future credit losses, First Citizens will also enter into a contract with the regulator. This agreement will be taken into consideration to share certain commercial loan losses while obtaining a line of credit from the FDIC for emergency liquidity needs.

According to Redmond Wong, market strategist at Saxo Markets in greater China, the acquisition of the SVB loan book and deposits by First Citizens Bank does little to address the primary root cause that the U.S. banking system is presently encountering. Deposits fleeing smaller banks for major banks or money market funds is the main issue of concern. By the end of 2017, Silicon Valley Bank was $209 billion in assets. The Santa Clara-based bank SVB was ranked as the 16th-largest lender in the country.

The fall of SVB set off the greatest financial crisis since 2008, which devastated banking equities all around the world. Last week saw a dramatic decline in the value of shares of European lenders, headed by Germany’s Deutsche Bank, which caused management to worry about a potential credit crisis.

Financing of the Business venture.

According to First Citizens, customers of SVB will still be able to access their funds through the following mediums.

• Websites.
• Mobile applications.
• Branches.

Workers from the bought companies would stay with the board. First Citizens put focus that this collaboration will speed up its expansion in California and provide entry to asset management services in the northeastern US.

Holding stated in a statement that they are dedicated to improving and maintaining the stable links that heritage SVB’s global fund banking division has with private equity and venture capital companies. 

First Citizens has following in their baskets.

• Assets of about $109 billion.
• Deposits of $89.4 billion.

According to the hint from the savior entity First Citizens, the combined association newly formed will have $145 billion in deposits and $219 billion in total assets.

The FDIC predicts that the bankruptcy of Silicon Valley Bank would cause a loss to its Deposit Insurance Fund (DIF) of about $20 billion. When the FDIC ends the receivership, the actual cost will be known, it stated. Along with that, the FDIC cried for the $2.5 billion damage when it sold Signature Bank to another bank holding company New York Community Bancorp 10 days ago.

The loss will cause the fund’s balance to plummet to around 1/3 of its statutory minimum, which will be “managed completely by the banking industry,” according to Wells Fargo critics. According to the regulatory body, the assets and SVB’s securities, whose value is about $90 billion, will be kept under receivership until they are sold.

Edited by Prakriti Arora