A major North Carolina bank has agreed to take over the remnants of Silicon Valley Bank, two weeks after the latter failed sending waves of concern rippling through the banking sector.
The FDIC announced at midnight Sunday that First Citizens Bank will assume $72 billion in assets held by the bridge bank created to manage SVB following its March 10 collapse, including all deposits and loans, at a discount of $16.5 billion.
First Citizens was selected as part of a bidding process managed by the FDIC. It has a history of growth by buying up failed banks the FDIC has put into receivership, and claims to have taken part in more of these sales since 2009 than any other bank.
Around $90 billion in securities and other assets will stay in receivership, held by the FDIC for further disposition. In its own announcement, First Citizens said it was not acquiring any stock in SVB’s holding company, nor any of the holing company’s other obligations or assets.
While the entire failure of SVB cost the FDIC’s deposit insurance fund $20 billion, it said, the regulator also received equity appreciation rights in common stock for First Citizens’ parent company as part of the deal, with potential value up to $500 million. It and First Citizens have agreed to share any potential losses generated by SVB’s commercial loans, and First Citizens said it had been granted a line of credit by the FDIC “for contingent liquidity purposes” to further help manage any potential fallout.
When SVB’s 17 former branches in California and Massachusetts open this morning, they will do so under First Citizens’ aegis. SVB customers who remained with the bridge bank will immediately become First Citizens customers, the FDIC said, and First Citizens confirmed these customers will still use the same websites, mobile apps and branches to access their accounts. Loan customers should also continue making payments as usual, First Citizens said.
Numbers released by the FDIC and First Citizens show how deeply the bank run that brought SVB to its knees, and subsequent skepticism about the lender’s future, had dug a hole in the bank’s balance sheet. The bridge bank First Citizens bought only had $56 billion in deposits, down from the $175.4 billion SVB held before the bank run and $119 billion it had when the FDIC seized it March 10, despite bridge bank CEO Tim Mayopoulos’ appeal to depositors who continued to leave even after the FDIC stepped in. Media reports suggest Bank of America and other megabanks have benefited from this deposit flight, and several high-profile Massachusetts-based banks told Banker & Tradesman they have worked to lure customers away from the former SVB.
In a conference call with investors Monday morning, First Citizens Bank executives said they plan to win back some of those depositors.
The $109 billion-asset First Citizens will gain the bridge bank’s $110 billion in assets, including $72 billion in loans.
It remains to be seen what First Citizens’ plans will be for the Massachusetts market share it has suddenly gained, but chairman and CEO Frank Holding Jr. sounded an optimistic note in a statement issued by the bank as part of its announcement of the purchase. The bank plans an investor conference call Monday morning to share more details.
“First Citizens has a proud history of growing organically and through strategic acquisitions that build our core capabilities in a careful and deliberate manner,” said Holding. “This transaction leverages our solid foundation to add significant scale, geographic diversity, compelling digital capabilities and most importantly, meaningful solutions for customers throughout their lifecycle. Specifically, we are committed to building on and preserving the strong relationships that legacy SVB’s Global Fund Banking business has with private equity and venture capital firms. This transaction also will accelerate our expansion in California and introduce wealth capabilities in the Northeast. SVB’s Private Wealth business is a natural fit for our high-touch and sophisticated level of high-net-worth customer service and approach.”