Crisis-hit Silicon Valley Bank acquired by First Citizens bank
The crash of Silicon Valley Bank (SVB) had sent shockwaves across the world. In the latest development, First Citizens Bank has agreed to buy the embattled start-up lender. SVB has been under the control of the Federal Deposit Insurance Corporation (FDIC) ever since it became the biggest US bank to fail in over a decade.
Why does this story matter?
- SVB's rapid implosion shook the foundation of the global financial system. The bank's fall created a sense of panic among customers around the world.
- Authorities have been scrambling to find a deal to bring a sense of calm to the financial system. First Citizens's acquisition of SVB should send a sign of reassurance that the banking system is still structurally sound.
First Citizens received SVB's assets at a discount
FDIC has reached an agreement with First Citizens for all loans and deposits of Silicon Valley Bridge Bank. All 17 branches of SVB will open as First Citizens starting today. First Citizens received $72 billion of SVB's assets at a discount of $16.5 billion. SVB had $169 billion in assets and $119 billion in deposits.
FDIC could not sell both firms together
The race to find a buyer for SVB has been on for a while. The FDIC first tried to sell SVB NA (the firm created after SVB went into receivership) and Silicon Valley Private Bank together. However, the lack of bidders forced FDIC to invite separate offers for both. First Citizen only submitted an offer for SVB NA.
SVB's assets worth $90bn still under FDIC's control
Even after the sale, $90 billion of SVB's assets will remain in the receivership of FDIC. The federal body also received equity appreciation rights in First Citizens BancShares worth as much as $500 million. There is a loss-share agreement between the two on commercial loans. As part of the agreement, FDIC and First Citizens will share in the losses and potential recovery of loans.
First Citizens is experienced in acquiring FDIC-assisted banks
First Citizens's acquisition of SVB has surprised a few observers. Many wonder whether First Citizens has the means to take on the second-largest FDIC-assisted bank failure in the US. The Raleigh, North Carolina-based bank was the 30th-largest commercial bank in the US in 2022. The bank is also experienced in acquiring its struggling rivals. It has acquired over 20 FDIC-assisted banks since 2009.
