First Citizens purchases defunct Silicon Valley Bank

North Carolina-based First Citizens Bank has acquired the defunct Silicon Valley Bank, according to the Federal Deposit Insurance Corporation.

The federal agency, which oversees the deposit insurance process of SVB, said First Citizens had purchased SVB loans for $72 billion with a 29 percent discount. In addition to the loans, First Citizens received $110 billion of SVB assets and $56 billion of customer deposits with the purchase. It also acquired 17 branches of SVB across the country.

When SVB announced its shutdown earlier this month, the bank had $167 billion in total assets and around $119 billion in total deposits. The rest of SVB's assets not acquired by First Citizens will "remain in receivership for disposition by the FDIC." These assets are mostly Treasury notes.

As a part of the acquisition contract, the FDIC has gained "equity appreciation rights" with a value cap of $500 million in First Citizens. The contract also contained an agreement that would protect First Citizens against potential losses on the SVB commercial loans it had purchased.

Analysts noted that there was no mention of cryptocurrency-related content in the FDIC announcement regarding the acquisition of SVB, unlike in the acquisition of another failed lender, Signature Bank.

First Citizens, the No. 30 bank in the U.S. as of last year, provides general banking services across 23 states. It was approximately half the size of SVB by the end of 2022, with $109 billion in total assets, while SVB was at $209 billion. The acquisition will boost First Citizens' total assets to $219 billion, making it larger than SVB last year.

Frank Holding, Jr., CEO of First Citizens, assured that his company would continue to support venture capital (VC) firms as SVB did.

"We are committed to building on and preserving the strong relationships that legacy SVB's global fund banking business has with private equity and venture capital firms," Holding said.

First Citizens chief financial officer Craig Nix told investors that the bank aimed to win back some SVB clients who had withdrawn their money. While smaller lenders reported declines in deposits since the beginning of the banking crisis, First Citizens posted a $1.3 billion deposit increase this quarter.

'Brief intermission' for U.S. banking sector

Financial regulators shut down SVB on March 10 after it experienced a bank run triggered by its announcement regarding the sales of bond assets at a $1.8 billion loss. SVB clients withdrew $42 billion just in a single day before the bank imploded.

The Federal Reserve's hawkish policy to curb inflation contributed to SVB's downfall. The high interest rate set by the central bank brought down the value of the bank's bond assets while SVB was trying to raise capital to meet the high volume of deposit withdrawals.

Hargreaves Lansdown head of money market Susannah Streeter said the acquisition of SVB had offered the U.S. banking sector a "brief intermission." She, nevertheless, warned that many banks were still at risk of experiencing "unrealized losses" in their assets, courtesy of the Fed's monetary policy.

Analysts warned that commercial real estate could follow the banking sector's steps as debt would mature over the next few years. It would be difficult for customers to refinance debts in a market with high rates, low liquidity and falling property valuation.

SVB's costly failure

According to the FDIC's estimate, the SVB's failure cost its Deposit Insurance Fund (DIF) approximately $20 billion. The cost of Signature's failure, which happened only two days after SVB, was estimated to be around $2.5 billion. If the FDIC's estimate of SVB were accurate, the SVB's failure would be one of the most expensive failures in U.S. history.

Authorities, however, have assured that taxpayers will not bear the brunt of the recent bank failure. The DIF comes from a levy on FDIC member banks instead of taxpayer money.