Bankrupt bank SVB acquired by First Citizens, another regional bank
First Citizens Bank has 550 branches in 22 states.
US bank First Citizens (FCB) will buy most of the remains of its compatriot Silicon Valley Bank (SVB), an operation seen as a new step towards an exit from the crisis which has shaken the banking sector for several weeks.
First Citizens, headquartered in Raleigh, North Carolina, will take over all of SVB's deposits and loans, and SVB's 17 branches will open as First Citizens on Monday, it announced overnight. from Sunday to Monday the American banking regulator (FDIC) in a press release.
The American authorities will have taken more than two weeks to find a buyer for the remains of SVB, whose regulator took control on March 10 to avoid its implosion.
SVB is the most biggest bank failure in the United States since 2008, the second of all time. It destabilized the entire banking sector, and reminded some of the beginnings of the 2008 financial crisis and its global consequences.
This is a major operation for FCB, the 30th American bank, whose assets at the end of 2022 weighed only half of those of SVB. The brand is known for its serial takeovers of troubled banks in recent years.
The acquisition was sensible as FCB has privileged relationships with banks. tech companies like SVB, including through Research Triangle Park, a massive high-tech campus between Raleigh and Durham, NC.
In detail, First Citizens will recover some US$72 billion in assets, loans and leases, with a major haircut of US$16.5 billion granted by the FDIC to facilitate the transaction.
The bank, which has 550 branches in 22 states, also receives US$56 billion in deposits. That's just a fraction of SVB's 174 billion at the end of 2022, as the California establishment has since been the victim of a wave of massive withdrawals.
In addition to the haircut, First Citizens obtained from the FDIC the establishment of several protection mechanisms to agree to absorb SVB.
The Deposit Guarantee Agency will in particular put set up a dedicated fund of 70 billion US dollars, which FCB can draw on in the event of an acceleration of customer withdrawals. The FDIC has also agreed to cover a portion of any losses the bank may incur on SVB's loan portfolio.
This acquisition is attractive financially, strategically and operationally, commented Frank Holding, managing director of First Citizens, during a conference call. It is also a great illustration of regulators and banks working together to protect depositors.
The FDIC expects the US Deposit Guarantee Scheme to take some US$20 billion in losses related to SVB's bankruptcy. It is funded by compulsory contributions from banks that benefit from the deposit guarantee mechanism.
The agency maintains a portfolio of financial securities inherited from SVB worth estimated at 90 billion US dollars, which it will manage directly until its extinction.
The announcement was welcomed on Wall Street, where First Citizens stock was up nearly 50% in early trading Monday. Stocks of many other regional banks were also up sharply.
This is a positive sign that the banks are not seen as so badly damaged. nobody would want more, commented CFRA Research's Alexander Yokum.
After SVB failed, another US institution, Signature Bank, went bankrupt.< /p>
In Europe, Credit Suisse, weakened for several years, was the most shaken by the earthquake. The second Swiss bank was bought out urgently by its compatriot UBS to avoid bankruptcy.
In order to contain the contagion, the American authorities have set up a system to lend massively, if need, to banks that could not cope with possible large withdrawals.
Last week, the FDIC announced an agreement similar to the one unveiled overnight, for the takeover of part of Signature Bank by Flagstar Bank, a subsidiary of New York Community Bancorp.
After the takeover of SVB and Signature Bank, everyone has the gaze turned towards First Republic, often considered the new weak link in the American banking system and which has been martyred on the stock market for two weeks, indicated Alexander Yokum.
The industry bank and the government do not want to see them fall, he continued. This could cause even more withdrawals at regional banks.