A Regional Bank That UBS Sees Surging By More Than 25% Gets A Double Upgrade

UBS has warned that First Citizens Bancshares' acquisition of Silicon Valley Bank assets could lead to a more stable and higher-quality earnings stream for its parent company. 

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In addition to the price upgrade, Preston raised his price target from $538 to $1,206, which implies a 26.1% increase over Tuesday's close, indicating a 26.1% rise from where the shares closed on Tuesday.

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There has been no change in the number of deposits and loans that Silicon Valley Bank has received from the FDIC since March 27. It is less than three weeks since the bank went under, which was focused on venture capital, and First Citizens will be buying the bank's deposits and loans. In this deal, approximately $72 billion of SVB assets will be purchased at a discount of $16.5 billion.

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As a result of the low loss nature of SIVB's loan portfolio, we believe the balance sheet will be more prepared to handle recession going forward, reflecting the higher quality earnings that are expected from the SIVB loan portfolio moving forward," Preston wrote in his note on Wednesday. 

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The analyst did express concern, however, that First Citizens' management has not yet provided hard information on the impact of the acquisition on the company's earnings or book value, thus it appears that the current estimates for First Citizens' pro forma tangible book value per share (TBVPS) might be “garbage in, garbage out.” 

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As a result, Preston believes that once the bank's first-quarter results have been released and a better understanding of the bank's book value will be revealed - that could lead to a re-rating of the stock. 

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In the premarket on Wednesday, First Citizens shares were up marginally from the previous day. To date, the stock price has risen 26.1% over the past year.

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