U.S. backstops Silicon Valley Bank’s sale to First Citizens
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U.S. regulators announced Monday that regional bank First Citizens Bancshares FCNCA.O will buy Silicon Valley Bank, which has recently failed due to a bank run. The decision is expected to cost the government insurance funds $20 billion.
Depositors withdrew their funds after the Federal Deposit Insurance Corporation (FDIC) took over a Silicon Valley bank earlier this month, triggering a bank run that also collapsed Signature Bank and caused significant losses for other regional lenders.
The FDIC hopes the acquisition by First Citizens will help reduce losses in its deposit insurance fund, which is funded by fees on the banking sector rather than taxpayer money.
Under the deal, the FDIC’s deposit insurance fund is expected to incur losses of approximately $20 billion, in addition to the $2.5 billion it lost when Signature Bank was sold to New York Community Bancorp. First Citizens will not pay cash upfront, but will instead offer equity appreciation. The FDIC has rights in its stock, which can be worth up to $500 million.
First Citizen will acquire Silicon Valley Bank’s $110 billion in assets, $56 billion in deposits and $72 billion in loans. The bank will also receive a line of credit from the FDIC for contingency liquidity purposes and an agreement with the regulator to share some of the losses on commercial loans to provide further downside protection against potential credit losses.
The move has been viewed positively for financial stability and the venture capital industry, but concerns remain that smaller banks will lose deposits to larger banks or money market funds. Silicon Valley Bank was the 16th largest lender in the US with assets of about $209 billion at the end of last year.
Following the acquisition, the former branches of Silicon Valley Bank will operate as Silicon Valley Bank, a division of First Citizens Bank. The deal will allow First Citizens to expand its presence in California and provide wealth management services in the Northeast US.
The FDIC estimates that First Citizen purchased about $72 billion of SVB’s assets at a discount of $16.5 billion. About $90 billion of securities and other assets from SVB will remain in receivership for disposal.