The United States blocks the sale of Silicon Valley Bank to First Citizens

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By RockedBuzz 6 Min Read
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By Scott Murdoch and Mehnaz Yasmin

(RockedBuzz via Reuters) – U.S. regulators said on Monday they would back a deal for regional lender First Citizens BancShares to buy bankrupt Silicon Valley Bank, resulting in an estimated $20 billion hit to an insurance fund managed by the government.

The deal comes after the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank on March 10 after depositors rushed to withdraw their money in a bank run that also collapsed Signature Bank and wiped out more than half the market value of many other US regional lenders.

The deal was “important” for First Citizens, CEO Frank Holding told investors on a conference call Monday. “We believe this transaction is a very good outcome for depositors.”

The Raleigh, North Carolina-based lender has completed 21 of these government-backed deals, including 14 since 2009, when CEO Holdings was named chairman, according to a note from Piper Sandler on Monday.

The FDIC fund does not take US taxpayer money and is instead replenished by a levy on member banks.

“The FDIC’s sale of SVB helps the show continue business as usual for the banking sector,” a team of Wells Fargo analysts led by Mike Mayo said in a statement Monday.

First Citizens won’t pay cash upfront for the deal. Instead, it said it had given the FDIC the rights to revalue its shares that could be worth up to $500 million, a fraction of what Silicon Valley Bank was worth before the bankruptcy.

The FDIC will be able to exercise these rights between March 27 and April 14. How much money he receives will depend on the value of the First Citizens’ stock.

Shares of First Citizens are up 50%.

First Citizens will take on Silicon Valley Bank’s assets of $110 billion, deposits of $56 billion and loans of $72 billion as part of the deal.

The FDIC said the $72 billion purchase of SVB’s assets came at a $16.5 billion discount.

SVB Private, which the FDIC was looking to sell separately last week and in which Citizens Financial Corp had expressed interest, was also acquired by First Citizens.

First Citizens said that SVB’s private wealth business “is a natural fit because of our high and sophisticated level of service and approach to high net worth clients.”

CREDIT LINE

First Citizens will also receive a line of credit from the FDIC for contingent liquidity purposes and will have an agreement with the regulator to share certain commercial loan losses to protect against potential credit losses.

“First Citizens Bank’s takeover of SVB’s loan portfolio and deposits does not add much to solving the number one problem facing the US banking system: deposits leaving smaller banks for larger banks or market funds monetary policy,” said Redmond Wong, Greater China market strategist at Saxo Markets.

Headquartered in Santa Clara, Silicon Valley Bank was the 16th-largest lender in the United States at the end of last year, with about $209 billion in assets.

The SVB collapse triggered the worst banking crisis since 2008, hitting banking stocks globally. Shares of European lenders fell sharply on Friday, led by Germany’s Deutsche Bank, raising concerns among regulators about a potential credit crunch.

Shares of US banks, both large and mid-sized, rallied on Monday.

VENTURE CAPITAL BUSINESS

SVB customers will continue to be able to access their accounts through websites, mobile apps and branches, First Citizens said. Employees of the acquired businesses will be retained, he added.

The deal will accelerate First Citizens’ expansion into California and give it wealth management capabilities in the northeastern United States, First Citizens said.

“We are committed to building and preserving the strong relationships that SVB’s global fund banking business has with private equity and venture capital firms,” Holding said in a statement.

First Citizens has approximately $109 billion in assets and total deposits of $89.4 billion. The combined company will have total assets of $219 billion and $145 billion in deposits, according to a First Citizens presentation.

“The FDIC estimates the cost of Silicon Valley Bank’s bankruptcy to its Deposit Insurance Fund (DIF) at approximately $20 billion. The exact cost will be determined when the FDIC ends receivership,” he said.

That adds to the $2.5 billion loss to the fund the FDIC suffered when it sold Signature Bank to New York Community Bancorp a week ago.

The loss will be “handled solely by the banking sector,” bringing the fund about a third below its legal minimum, Wells Fargo analysts said.

About $90 billion in SVB’s securities and other assets will remain in administration following the divestiture, the regulator added.

(Reporting by Scott Murdoch in Sydney and Mehnaz Yasmin in Bangalore; Additional reporting by Xie Yu and Selena Li in Hong Kong, Jahnavi Nidumolu, Tommy Reggiori Wilkes in London and Lananh Nguyen in New York; Editing by Edwina Gibbs, Lananh Nguyen and Nick Zieminski )

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