US backs First Citizens' acquisition of Silicon Valley Bank

First Citizens BancShares intends to acquire Silicon Valley Bank, the California lender whose collapse this month sent shockwaves throughout the financial community.

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On March 10, Silicon Valley Bank was taken over by the Federal Deposit Insurance Corporation after a run on the bank's deposits rendered it insolvent. Since making the transaction announcement late on Sunday, the F.D.I.C. has been searching for a buyer for the bank, either as a whole or in fragments.

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When the government took over Silicon Valley Bank, it was the 16th-largest bank in the nation. Since the 2008 financial crisis, its fall was the largest bank failure in the US.

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After being seized by the F.D.I.C., the bank was acquired by Silicon Valley Bridge Bank, which included the transfer of all of the bank's $56 billion in deposits as well as the purchase of around $72 billion in loans at a discount of $16.5 billion. Amounting to $90 billion in securities and other assets owned by Silicon Valley Bank were excluded from the transaction and remained under the F.D.I.C.'s management.

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Before it failed, Silicon Valley Bank had almost $175 billion in deposits, which shows how large the withdrawals were before it was taken over by authorities. First Citizens' ability to keep up with Silicon Valley Bank's clientele, which is heavily influenced by technology, will be put to the test.

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Craig Nix, the chief financial officer of First Citizens, admitted that there had been a significant amount of runoff from the legacy Silicon Valley Bank this quarter during a conference call with investors on Monday. "But, it is our intention to welcome the skills of our historical SVB employees, embrace their business capabilities, and then emphasize to their clients that First Citizens has an unshakable focus on holistic client relationships," the statement continued.

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The F.D.I.C. will get rights associated with First Citizens stock as part of the agreement, which could be valued at up to $500 million. A failure of Silicon Valley Bank would cost the government's deposit insurance fund almost $20 billion, according to the bank regulator.

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In a common practice in the sale of bankrupt banks, First Citizens and the F.D.I.C. will split any losses on the loans involved in the deal. For instance, the F.D.I.C. promised to pay First Citizens back for any losses on the portfolio of commercial loans transferred in the agreement that exceed $5 billion.

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The 17 former locations of Silicon Valley Bank in Massachusetts and California will reopen on Monday under the First Citizens brand. Its deposits will essentially become First Citizens clients by default.

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SVB Finance, the previous parent organization of Silicon Valley Bank, declared bankruptcy on March 17. To sell other assets, including the investment manager SVB Capital and the brokerage company SVB Securities, it intends to conduct a separate procedure.

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Global financial markets experienced vibrations after Silicon Valley Bank's demise.

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A week after the FDIC seized its operations, on March 19, New York Community Bancorp acquired some assets of the defunct Signature Bank. Almost $38 billion worth of assets were included in the transaction, including $12.9 billion in loans that were acquired at a $2.7 billion discount. The F.D.I.C. calculated that the failure of the bank would cost the government's deposit insurance fund roughly $2.5 billion. Roughly $60 billion of Signature's loans were excluded from the sale.

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In a hastily orchestrated agreement, the Swiss government negotiated for UBS, Switzerland's largest bank, to purchase its struggling smaller rival Credit Suisse for around $3.2 billion. Investors swiftly lost faith in Credit Suisse when the markets were spooked by the collapse of Silicon Valley Bank. Credit Suisse had been beset for years by scandals and poor management. Officials stressed the strength of regulations and the strictness of oversight in the area as a result of the fears spreading to other European banks.

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Banking authorities from all across the world have moved quickly to bolster systemic trust. It was announced that the Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank would all endeavor to increase the accessibility of U.S. dollar finance. In order to provide give banks further support, the Fed also established an emergency lending program.

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The deposit insurance ceiling, which is now set at $250,000, has come under pressure from some MPs since U.S. regulators announced that all depositors at Silicon Valley Bank and Signature Bank would receive full repayment.

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In the first hour of trading on Monday, shares of midsize lenders, which have suffered since Silicon Valley Bank's failure, surged. First Citizens and First Republic both had increases of more than 40%. After the increase, First Citizens was one of the few banks with a positive year-over-year stock performance.

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After the Silicon Valley Bank deal was announced, a number of analysts increased their price targets for First Citizens' stock. Strategists at Janney Montgomery Scott, for example, stated that the acquisition "adds further low-risk growth to a healthy investment thesis," which increases their estimate of the "fair value" of the bank's shares by about 60%.

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The Raleigh, North Carolina-based company First Citizens operates more than 500 branches in 22 states. The bank was established in 1898 and prides itself on being the biggest family-controlled institution in the country. It has been run by members of the same family for three generations.

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The bank announced on Monday that since the year's beginning, deposits had increased by $1.3 billion. The bank predicted that it would have more than $40 billion in cash on hand following the transaction.

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In recent years, the bank has expanded dramatically, in part thanks to the acquisition of more than 20 government-seized lenders. Over the past ten years, the bank's assets have increased from $20 billion to over $100 billion, and the acquisition of Silicon Valley Bank will instantly double those holdings.

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By the conclusion of the previous year, First Citizens was the 30th-largest bank in terms of assets in the United States. First Citizens is expected to move into the top 20 banks after the acquisition (Silicon Valley Bank was the 16th largest bank at the time).

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Additionally, the merger expands First Citizens' presence in California and includes Silicon Valley Bank's wealth management division, which catered to numerous technology professionals who conducted a significant portion of their personal financial transactions through the bank.

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CEO of First Citizens, Frank B. Holding, Jr., said in a statement, "We have worked with the F.D.I.C. to successfully complete more F.D.I.C.-assisted transactions since 2009 than any other bank, and we appreciate the confidence the F.D.I.C. has placed in us once again.”