Shares of First Citizens Bank surged almost 50 per cent on Monday morning following news it would buy much of the failed Silicon Valley Bank.
The deal, the second acquisition of a failed bank in as many weeks brokered by the Federal Deposit Insurance Corporation, buoyed shares of other midsized banks that have come under pressure following the collapse of SVB.
First Republic Bank’s stock rose more than 10 per cent on Monday after government officials signalled late last week they would be willing to provide more assistance to support struggling banks.
As it announced the deal, the FDIC said the failure of SVB could cost its deposit insurance fund, paid for by member banks, about $20bn. That would make SVB the most costly failure in the history of the US insurance deposit fund, which was started in 1933, eclipsing the $12bn loss it took on the failure of IndyMac at the start of the global financial crisis in 2008. It is the latest sign of the damage caused by the collapse of SVB.
First Citizens, which calls itself the nation’s largest family-controlled bank, has been one of the biggest buyers of troubled lenders in recent years, fuelling its recent growth. Monday’s rally suggested that investors thought the lender had again made a shrewd, and likely profitable, deal.
The North Carolina-based lender will take on all the deposits and loans of SVB, the once high-flying lender to tech start-ups and their investors that failed this month. First Citizens will also operate SVB’s 17 branches.
“We appreciate the confidence the FDIC has placed in us,” said First Citizens’ chief executive Frank Holding Jr. “First Citizens has a proud history of growing organically and through strategic acquisitions.”
Holding said he was “specifically” committed to SVB’s business with private equity and venture capital firms, and highlighted his bank’s experience working with start-ups in North Carolina’s Research Triangle, which is popular with biotechs. Though he added that SVB had lost numerous accounts over the past few weeks and that First Citizens was prepared for more outflows.
Still, First Citizens appears to have struck a generous deal for SVB. In addition to SVB’s $72bn loan portfolio, which is being acquired at a roughly 20 per cent discount, First Citizens will also get $35bn in cash from the FDIC. The bonds and other assets that dropped in value, and initially sparked the drop in SVB’s shares, will be kept by the FDIC, which is acting as its receiver.
In addition, the regulator and the lender will share the losses and potential recoveries on commercial loans made by SVB, a move that First Citizens said would provide “further downside protection against potential credit losses”.
To help pay for the deal, the FDIC will receive “equity appreciation rights” linked to First Citizens’ shares, which it said could be worth as much as $500mn.
SVB had about $167bn in assets and about $119bn in deposits as of March 10, the FDIC said.
Holding took over the job in 2008 as chief executive of First Citizens, which was started by his grandfather in 1898. He has since overseen almost two dozen acquisitions in FDIC-assisted bank deals. Last year, First Citizens paid $2bn to acquire CIT Group, a lender to midsized corporations.
The addition of SVB’s business will significantly increase the size of First Citizens. The combined lenders will have more than $200bn in assets and will rank as the 20th largest lender in the US.
The deal follows a similar takeover announced a week ago for Signature Bank, the operations of which were sold to New York Community Bank-owned Flagstar.
As part of that deal, the FDIC was forced to retain $60bn worth of Signature’s loans. The federal agency has estimated that the failure and resolution of Signature Bank could cost the FDIC’s insurance fund $2.5bn.
The plunge in SVB’s shares at the start of this month set off worries about increasing problems at regional lenders and the US financial system. On March 10, SVB was taken over by the FDIC after losses on its security portfolio and a failed equity raise spooked investors and depositors.
That kicked off an auction led by the FDIC for the failed lender. Along with several regional banks, private equity investors including Blackstone, Apollo, Carlyle, Sixth Street and HPS Investment Partners inspected SVB’s loans to consider possible offers, according to people with knowledge of the matter.