- First Citizens Bank agreed to buy most of Silicon Valley Bank on Sunday.
- The Raleigh, NC-based bank now owns 17 branches of SVB and paid $72 billion for the California lender’s assets.
- Here’s everything you need to know about the latest twist in the US’s regional banking turmoil.
Silicon Valley Bank’s US operations have finally been taken over – 16 days after the Santa Clara-based lender spectacularly collapsed.
First Citizens Bank has agreed to buy SVB, according to a statement released on Sunday by the Federal Deposit Insurance Corporation.
Here’s everything you need to know about the takeover, what it means for the ongoing global banking turmoil, and how markets are reacting to the news.
SVB’s share price plunged 86% in a two-day span earlier this month after it disclosed massive losses on its bond portfolio, fueling a bank run that saw high-profile customers like Peter Thiel’s Founders Fund pull their money.
Its US operation was then taken over by the FDIC, a government-run body that insures Americans’ deposits, on March 10 – and over two weeks later, it has found a buyer for the bank.
First Citizens is paying $72 billion to buy a big chunk of SVB’s assets at a $16.5 billion discount, while the FDIC will hold onto about $90 billion worth of securities and other assets.
The FDIC estimated that SVB’s failure had cost it around $20 billion in total, although it said it will give a more exact amount when it terminates its receivership of the bank.
It’ll also receive benefits tied to First Citizens’ share price, which it estimated could be worth around $500 million.
What is First Citizens?
It’s a Raleigh, North Carolina-based lender that brands itself as the US’s biggest family-run bank and was the country’s 30th-largest by assets at the end of last year, according to Federal Reserve data.
Some observers have questioned whether First Citizens is big enough to be able to take over the second-largest bank to ever collapse in the US – but it’s no stranger to taking over failed rivals.
First Citizens has bought more than 20 other banks since the 2008 financial crisis, according to data from Bloomberg. Its latest purchase was financial services firm CIT Group, for which it paid $2 billion in January.
The bank outbid rival Valley National Bancorp, which had also been in the running to buy SVB, according to a Bloomberg article published Saturday that cited people familiar with the matter.
How does this affect SVB customers?
The 17 former branches of the California-based bank will be controlled by First Citizens as of Monday, according to the FDIC’s statement.
Anyone who still had money deposited with SVB will see those funds automatically transferred over to First Citizens, the government-controlled organization said.
SVB mainly catered to venture capital-backed tech startups rather than individual customers – and they’ll now be banking with First Citizens unless they switch their account to another lender.
The customers will still have deposits worth up to $250,000 insured by the FDIC as per normal limits, it said in its statement.
Will this end the banking crisis?
Investors will be breathing sighs of relief Monday and hoping that First Citizens’ takeover of SVB will help to provide some much-needed stability for the embattled banking sector.
As a reminder, the industry saw a string of shocking bank failures this month – from SVB, Signature and Silvergate Capital in the US to the 167-year-old Credit Suisse in Europe – after the past year’s surge in interest rates hurt valuations of financial assets including bonds, stocks and cryptocurrencies.
By offloading SVB, the FDIC can now provide greater support to other regional US banks that are struggling, like San Francisco-based First Republic.
But Sunday’s deal doesn’t mean the factors that fueled the California lender’s collapse – including rising borrowing costs cratering asset valuations – won’t cause further banking stress.
“Shunting parts of the failed bank off to a new owner to may give the regulator more capacity to deal with problems still threatening to pop up elsewhere, particularly with US regional banks,” Hargreaves Lansdown’s head of money and markets Susannah Streeter said.
“The big worry is that they are sitting on big piles of unrealized losses, not just in their bond portfolios, but on other assets which have been battered by the storm of high interest rates,” she added.
How are markets reacting?
Early reaction to First Citizens’ takeover of SVB has been cautious but positive.
S&P 500 futures edged up 0.5% ahead of Monday’s open, while Nasdaq 100 futures rose 0.3% and the Dow Jones Industrial Average was on pace to add over 150 points at the opening bell.
Many US bank stocks also surged in early-morning trading. Embattled First Republic led all stocks with a 30% jump in premarket trading, while First Citizens itself rallied 20% on news of its deal with the FDIC.
Meanwhile, Frankfurt-listed Deutsche Bank – which rocked European markets Friday when its share price plunged after a spike in its credit default swaps – climbed 3% Monday to erase most of its losses from the previous trading session.
“Many investors still don’t want to touch the banking sector for fears there is more distress to come,” AJ Bell investment director Russ Mould said.
“Yet for every bleak situation there is always someone who sees an opportunity to make money, hence why we’re seeing a rise in the share price of many European banks today,” he added.