First Citizens acquires bankrupt Silicon Valley Bank: 5 key things to know
Moreover, in 2022, the bank successfully completed the acquisition of CIT Group Inc. for a sum exceeding $2 billion.
The US-based First Citizens BancShares Inc. has reached an agreement to acquire Silicon Valley Bank (SVB), which was taken over by regulators after a wave of withdrawals from the lender.
Here are five crucial facts to be aware of regarding the acquisition:
- Under the terms of the purchase and assumption agreement, First Citizens will take over all of SVB's loans and deposits, as well as purchase approximately $72 billion of SVB's assets at a discount of $16.5 billion.
- The acquisition will expand First Citizens' presence in the technology and innovation hub of Silicon Valley, and will make it one of the largest banks in the US.
- Securities and other assets worth around $90 billion will be held by the FDIC for disposition, according to the statement.
- The FDIC has been granted equity appreciation rights in First Citizens that could be worth up to $500 million.
- The failure of SVB is estimated to have cost the Deposit Insurance Fund roughly $20 billion, although the exact extent of the damage will be determined once the receivership is terminated.
According to the official statement, "this has been a remarkable transaction in partnership with the FDIC that should instil confidence in the banking system," Frank Holding Jr., chief executive officer of First Citizens, said.
Earlier this month, Silicon Valley Bank, the largest US lender to fail in over a decade, experienced a sudden and rapid decline after announcing a plan to strengthen its capital position.
The bank suffered significant losses on the sale of its securities due to the increasing interest rates, which caused alarm among depositors and investors who quickly began withdrawing their funds.
In just 48 hours, the bank lost a significant amount of money, with depositors and investors attempting to withdraw approximately $42 billion on March 9th alone.
Regulators had been trying to secure a deal for either the entire bank or some of its parts to cover the uninsured deposits of its startup clients.
However, an earlier auction attempt failed to attract any buyers.
Following the failed auction, the FDIC extended the bidding process after receiving "significant interest" from several potential buyers. To make the process more straightforward and to expand the number of potential buyers, the FDIC permitted parties to submit individual offers for the subsidiary of Silicon Valley Private Bank and Silicon Valley Bridge Bank NA - the institution established by the FDIC after SVB was taken into receivership.
Following the collapse of SVB, US authorities took unprecedented steps to restore confidence in the financial system.
They introduced a new backstop for banks that Federal Reserve officials believed would be sufficient to protect deposits across the entire country. SVB's shares took a nosedive after the Santa Clara-based company announced plans for an equity offering, revealed a $1.8 billion loss from securities sales, and faced a slowdown in funding from venture capital-backed firms it served.
As a result, the bank had to abandon its plan to raise capital as investors such as Founders Fund, Coatue Management, Union Square Ventures, and Founder Collective advised their portfolio companies to move their funds out of SVB.
Despite doubts about First Citizens' ability to handle the SVB acquisition, the bank has a track record of purchasing struggling competitors. It has acquired over 20 FDIC-assisted banks since 2009, striking deals across various states, from Washington to Pennsylvania.
Moreover, in 2022, the bank successfully completed the acquisition of CIT Group Inc. for a sum exceeding $2 billion.
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First Published:27 Mar 2023, 01:58 PM IST
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