As per the announcement from the Federal Deposit Insurance Corporation, the Raleigh, North Carolina-based bank entered into a buy-and-take-over agreement for all of SVB's assets and debts. According to the FDIC, the deal comprises the acquisition of approximately $72 billion in SVB holdings at a $16.5 billion markdown.
The Federal institution also received equity appreciation rights in First Citizens worth up to $500 million, and around $90 billion in commodities and other assets would remain in liquidation for the FDIC to dispose of. The statement claims that the loss will have cost the Deposit Insurance Fund roughly $20 billion. However, the precise amount won't be known until the administration is through.
First Citizens Bank buys Silicon Valley Bank, taking on all its deposits and loans
— Bloomberg TV (@BloombergTV) March 27, 2023
Finance editor Russell Ward reports https://t.co/AE2hdwzbu8 pic.twitter.com/WWOQHCQIJ7
Frank Holding Jr., CEO of the First Citizens, stated that it has been a fantastic transaction in conjunction with the FDIC that should inspire credibility in the financial sector.
The institution also announced that it will absorb $56 billion in funds and start running Silicon Valley Bank as a part of First Citizens, through 17 heritage offices. Yet, the consumers' accounts won't update right away.
This month, Silicon Valley Bank abruptly collapsed, becoming the largest US lender to fail in more than a decade, less than two days after laying out a strategy to raise money. Due to the bank's significant loss on the sale of its assets at a time when interest rates were increasing, investors and customers quickly started withdrawing their funds. Over $42 billion in withdrawal attempts were made by shareholders and consumers on March 9 only.
In an effort to protect the unprotected savings of the bank's starting customers, regulatory authorities had been rushing to secure a transaction for all or portions of the organisation, but an initial trading operation failed to find a buyer.
After obtaining "significant interest" from numerous possible buyers, the FDIC then prolonged the auction. The FDIC permitted companies to present individual bids for Silicon Valley Private Bank subsidiary and Silicon Valley Bridge Bank NA, the company established by the FDIC when SVB fell into liquidation, in order to streamline the procedure and widen the number of buyers.
After the SVB collapse, US authorities took exceptional steps to restore faith in the economic sector, providing a new bank guarantee that Federal Reserve officials claimed was adequately large to safeguard all accounts in the country.
After the Santa Clara, California-based corporation revealed intentions for a share offer, acknowledged a $1.8 billion loss on the sale of securities, and reported a downturn in investing at the venture capital-backed companies it supports, stocks of SVB had fallen drastically. As firms like Founders Fund, Coatue Management, Union Square Ventures, and Founder Collective started encouraging their investment businesses to withdraw money from SVB, the bank was compelled to discontinue its strategy of raising cash.
Immediately following SVB's failure, First Citizens made a proposal, according to sources with knowledge of the situation.
Some observers were perplexed by its enthusiasm to take over and questioned whether First Citizens had the resources to handle the second-largest bank collapse supported by the FDIC in American history. As per Federal Reserve data, Raleigh, North Carolina-based First Citizens was the 30th-largest commercial bank in the US by assets at the end of 2022.
However, the bank has expertise in purchasing failing competitors. Since 2009, it has obtained more than 20 banks with FDIC assistance by concluding a number of agreements in states like Pennsylvania, Wisconsin, and Washington.
Moreover, First Citizens closed the $2 billion purchase of CIT Group Inc. the previous year.