New York (awp/afp) – The American bank First Citizens 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 deposits and loans” from SVB, and “all 17 SVB branches will open as First Citizens” on Monday, announced in the night of 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, which the regulator took control on March 10 to avoid its implosion.
SVB is the biggest bank failure in the United States since 2008, the second of all time. It destabilized the entire banking sector, reminding some of the beginnings of the 2008 financial crisis and its global consequences.
It is a major operation for First Citizens (FCB), the 30th American bank, whose assets at the end of 2022 weighed only half of those of Silicon Valley Bank. The brand is known for its series of takeovers of troubled banks in recent years.
The acquisition made sense insofar as FCB has privileged relations with companies in the technology sector, like SVB, in particular via the Research Triangle Park, a huge campus dedicated to advanced technologies located between Raleigh and Durham, in North Carolina.
In detail, First Citizens will recover some $72 billion in assets, loans and leases, with a major haircut of $16.5 billion granted by the FDIC to facilitate the transaction.
The bank, which has 550 branches in 22 states, also receives $56 billion in deposits. This is only a fraction of the 174 billion SVB at the end of 2022, the Californian establishment having since been the victim of a wave of massive withdrawals.
Regards vers First Republic
In addition to the haircut, First Citizens obtained from the FDIC the implementation of several protection mechanisms to consent to absorb SVB.
The Deposit Guarantee Agency will in particular set up a dedicated fund of 70 billion dollars, in which First Citizens will be able to draw in the event of 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, CEO of First Citizens, during a conference call. “It’s also a great illustration of regulators and banks working together to protect depositors.”
The FDIC expects the US Deposit Guarantee Scheme to take some $20 billion in losses from SVB’s bankruptcy. It is funded by compulsory contributions from banks that benefit from the deposit guarantee mechanism.
The agency retains a portfolio of financial securities inherited from SVB with an estimated value of 90 billion dollars, which it will manage directly until extinction.
The announcement was welcomed on Wall Street, where the action of First Citizens gained nearly 50% Monday at the start of the session. The titles of many other regional banks were also up sharply.
“It’s a positive sign that the banks are not seen as damaged to the point that no one would want them anymore,” commented Alexander Yokum of CFRA Research.
After the failure of SVB, another American institution, Signature Bank, went bankrupt.
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 an attempt to contain the contagion, the American authorities have set up a system to lend massively, if necessary, to banks that might not cope with possible large withdrawals.
Last week, the FDIC announced an agreement similar to that unveiled overnight, for the takeover of part of Signature Bank by Flagstar Bank, a subsidiary of New York Community Bancorp.
After the acquisition of SVB and Signature Bank, “everyone’s eyes are on 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, said Alexander Yokum.
“The banking industry and the government don’t want to see them fall,” he continued. “It might cause even more withdrawals at regional banks.”
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