It could be that the banking crisis that set off panic in the global financial scene is drawing to a close as First Citizens BancShares Inc. announced that it would buy California’s fallen Silicon Valley Bank (SVB) for up to $500 million in stocks.
First Citizens made the announcement on Monday, March 27th.
For its part, the Federal Deposit Insurance Corporation (FDIC), which took control over SVB last March 12th, confirmed that it received equity appreciation rights in First Citizens stock as part of the takeover.
A Structured Purchase
According to First Citizens executives, the purchase of SVP will involve the acquisition of all its standing deposits and loans. The transaction was structured in such a way as to preserve First Citizens’ position in the financial community and ensure the new joint entity’s resilience through a solid and diverse loan and deposit portfolio.
To do so, First-Citizens Bank & Trust Company, a unit under First Citizens BancShares, will assume the failed bank’s assets worth $110 billion, deposits of around $56 billion, and loans amounting to $72 billion.
The FDIC will also give another corporate unit, First Citizens Bank, a line of credit for contingent liquidity. Both parties will then sign an agreement to share losses to serve as additional protection against future credit losses.
First Citizens execs added that this approach is based on prudent risk management and is meant to protect both customers and shareholders regardless of market conditions.
That said, seventeen former SVB branches are set to reopen on March 27. While the name Silicon Valley Bank will be retained, it will now be referred to as a division of First Citizens Bank.
A Major Catastrophe in Banking
The collapse of SVP on March 10th is seen as the largest bank failure since the last major financial crisis hit the world in 2008. The event resulted in serious disruption in both domestic and foreign markets and increased instability and wariness throughout the global banking sector.
Prior to its failure, SVB was considered the sixteenth largest lender in the United States. Its total assets at the end of 2022 were pegged at around $209 billion.
That said, the bank’s collapse led to a loss of around $20 billion to the FDIC’s Deposit Insurance Fund (DIF.) However, the full cost will only be determined once the agency terminates its receivership.