The American bank First Citizens will buy most of the remains of its compatriot Silicon Valley Bank (SVB), an operation seen as a new step towards a way out of the crisis which has shaken the banking sector for several weeks.
First Citizens, headquartered in Raleigh, North Carolina, will take over “all deposits and loans” from SVB, and “all 17 SVB branches will open as First Citizens” on Monday, announced in the night of Sunday to Monday the American banking regulator (FDIC) in a press release.
The American authorities will have taken more than two weeks to find a buyer for the remains of SVBwhich the regulator had taken control on March 10 to avoid its implosion.
Biggest bank failure since 2008
SVB is the biggest bank failure in the United States since 2008, the second of all time. It destabilized the entire banking sector, reminding some of the beginnings of the 2008 financial crisis and its global consequences.
It is a major operation for First Citizens (FCB), the 30th American bank, whose assets at the end of 2022 weighed only half of those of Silicon Valley Bank. The brand is known for its series of takeovers of troubled banks in recent years.
The acquisition made sense insofar as FCB has privileged relations with companies in the technology sector, like SVB, in particular via the Research Triangle Park, a huge campus dedicated to advanced technologies located between Raleigh and Durham, in North Carolina.
In detail, First Citizens will recover some $72 billion in assets, loans and leases, with a major haircut of $16.5 billion granted by the FDIC to facilitate the transaction.
The bank, which has 550 branches in 22 states, also receives $56 billion in deposits. This is only a fraction of the 174 billion SVB at the end of 2022, the Californian establishment having since been the victim of a wave of massive withdrawals.
Regards vers First Republic
In addition to the haircut, First Citizens obtained from the FDIC the implementation of several protection mechanisms to consent to absorb SVB. The Deposit Guarantee Agency will in particular set up a dedicated fund of 70 billion dollars, in which First Citizens will be able to draw in the event of acceleration of customer withdrawals. The FDIC has also agreed to cover a portion of any losses the bank may incur on SVB’s loan portfolio.
“This acquisition is financially, strategically and operationally attractive,” commented Frank Holding, CEO of First Citizens, during a conference call. “It is also a good illustration of the collaboration of regulators and banks to protect depositors. »
The FDIC expects the US Deposit Guarantee Scheme to take some $20 billion in losses from SVB’s bankruptcy. It is funded by compulsory contributions from banks that benefit from the deposit guarantee mechanism.
The agency retains a portfolio of financial securities inherited from SVB with an estimated value of 90 billion dollars, which it will manage directly until extinction. The announcement was welcomed on Wall Street, where the action of First Citizens gained nearly 50% Monday at the start of the session. The titles of many other regional banks were also up sharply.
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