First Citizens BancShares Inc has reportedly agreed to buy the collapsed US lender Silicon Valley Bank (SVB).
The US’s Federal Deposit Insurance Corp (FDIC) informed that First Citizens engaged in a buy and assumption deal for all SVB’s debts and deposits.
According to the FDIC, the transaction involves the acquisition of SVB’s assets worth approximately US$72bn, at a $16.5bn-worth discount.
The FDIC also received stock appreciation rights in First Citizens worth up to $500m, and approximately $90bn in equities and other assets will stay in the receivership for the FDIC to dispose of. The FDIC claims that the failure will have cost the Deposit Insurance Fund (DIF) about $20bn, though the precise amount won’t be known until the administration is over.
Frank Holding Jr, the CEO of First Citizens, said, “This has been a remarkable transaction in partnership with the FDIC that should instil confidence in the banking system.”
The American lender announced that it will take $56bn in deposits and start running the SVB, a subsidiary of First Citizens, through 17 legacy locations. The customer profiles won’t alter right away.
The SVB, one of the big US banks, abruptly collapsed earlier this month, becoming the largest US lender to fail in more than a decade, less than 48 hours after laying out a strategy to raise money. Due to the bank’s enormous loss on the selling of its assets at a time when interest rates were increasing, investors and depositors quickly started withdrawing their funds.
About $42bn in withdrawal attempts were made by investors and savers on March 9th alone.
To cover the uninsured assets of the bank’s startup clients, regulators had been rushing to secure a deal for all or portions of the bank, but a previous bidding attempt failed to find a buyer.
After getting “substantial interest” from numerous prospective buyers, the FDIC then prolonged the bidding procedure. The FDIC permitted parties to make distinct bids for Silicon Valley Private Bank subsidiary and Silicon Valley Bridge Bank NA, the company established by the FDIC after SVB fell into bankruptcy, in an effort to streamline the process and widen the group of candidates.
The panicked and crisis-ridden US government plunged into war mode following SVB’s failure. It started desperate attempts to rebuild trust in the financial sector of the crisis-ridden country with a failing economy.
President Joe Biden’s regime tried to normalise the situation by establishing a half-baked bank guarantee, which no one reportedly has faith in except the Federal Reserve officials.
The California-based SVB’s shares fell sharply after it declared a loss of $1.8bn on securities sales and reported that the venture capital-backed start-ups it supports are facing a financial slowdown. It revealed a plan to raise capital to save itself.
However, SVB had to abandon the plan to raise capital after funds like Founders Fund, Coatue Management, Union Square Ventures, and Founder Collective started encouraging their portfolio businesses to transfer money out of SVB.
Immediately following the SVB’s collapse, First Citizens put in a proposal, according to mainstream media reports.
Some onlookers were perplexed by its interest in the acquisition and questioned whether First Citizens had the resources to handle the second-largest bank collapse supported by the FDIC in American history. According to Federal Reserve statistics, Raleigh, North Carolina-based First Citizens was the 30th-largest private bank in the US by assets at the end of 2022.
But the bank has expertise in purchasing failing competitors. Since 2009, it has purchased more than 20 banks with FDIC assistance by concluding several agreements in states like Pennsylvania, Wisconsin, and Washington.
Additionally, First Citizens finalised the purchase of CIT Group Inc. last year in a deal valued at more than $2bn.
