First Citizens will acquire much of Silicon Valley Bank, the tech-focused financial institution that collapsed this month, setting off a chain reaction that caused a second bank to fail and tested faith in the global banking sector.
The Federal Deposit Insurance Corp. and other regulators had already taken extraordinary steps to head off a wider banking crisis by guaranteeing that depositors in SVB and failed Signature Bank would be able to access all of their money.
While more than half of Silicon Valleys assets will remain in US receivership, the First Citizens deal announced late Sunday, at least initially, seemed to achieve what regulators have sought: a shoring up of trust in US regional banks.
At the opening bell Monday, shares of midsized banks like Keycorp, Zions and First Horizon rose 8 per cent. First Republic Bank, which received a USD 30 billion rescue package from 11 of the biggest banks in the country as it teetered in the wake of the Silicon Valley collapse, jumped 23 per cent.
Customers of SVB will automatically become customers of First Citizens, which is headquartered in Raleigh, North Carolina. The 17 former branches of SVB will open as First Citizens branches Monday, the FDIC said.
European shares opened higher Monday, with German lender Commerzbank AG up 2.4 per cent and BNP Paribas up 1.2 per cent. Anxiety over contagion in the banking sector quickly spread to Europe this month and regulators there brokered a takeover by UBS of troubled Swiss bank Credit Suisse.
Shares of Deutsche Bank tumbled 8.5 per cent Friday for similar reasons, rising interest rates, but stock in the German bank bounced back 3.6 per cent Monday.
Silicon Valley, based in Santa Clara, California, collapsed March 10 in a bank run after customers rushed to withdraw money due to fears over the bank’s solvency. It was the second-largest bank collapse in US history after the 2008 failure of Washington Mutual. Two days later, New Yorks Signature Bank was seized by regulators in the third-largest bank failure in the US.
In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of USD 250,000, so depositors were able to access their money.
New York Community Bank agreed to buy a significant chunk of Signature Bank in a USD 2.7 billion deal a week ago, but the search for a buyer for SVB took longer.
The sale of Silicon Valley Bank involves the sale of all deposits and loans of SVB to First-Citizens Bank and Trust Co., the FDIC said.
The acquisition gives the FDIC shares in First Citizens worth USD 500 million. Both the FDIC and First Citizens will share in losses and the potential recovery on loans included in a loss-share agreement, the FDIC said.
The FDIC will retain about USD 90 billion of Silicon Valley Bank’s USD 167 billion in total assets, as of March 10, while First Citizens will acquire USD 72 billion at a discount of USD 16.5 billion, the FDIC said. It said it estimates Silicon Valley Bank’s failure will cost its industry-funded Deposit Insurance Fund about USD 20 billion.
First Citizens Bank was founded in 1898 and says it has more than USD 100 billion in total assets, with more than 500 branches in 21 states as well as a nationwide bank. It reported net profit of USD 243 million in the last quarter. It is one of the top 20 US banks and says it is the largest family-controlled bank in the country.
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