First Citizens BancShares Inc (FCNCA.O) said on Monday it will acquire the deposits and loans of failed Silicon Valley Bank (SIVB.O), closing one chapter in the crisis of confidence that has ripped through global financial markets.
The Federal Deposit Insurance Corporation (FDIC), which took control of SVB earlier this month, said in a separate statement it has received equity appreciation rights in First Citizens BancShares stock with a potential value of up to $500 million as part of the deal.
First Citizens said the transaction was structured to preserve its solid financial position and the combined company remains resilient with a diverse loan portfolio and deposit base.
Under the deal, unit First–Citizens Bank & Trust Company will assume SVB assets of $110 billion, deposits of $56 billion and loans of $72 billion.
“Prudent risk management approach will continue to protect customers and stockholders through all economic cycles and market conditions,” the statement said.
First Citizens Bank will also receive a line of credit from the FDIC for contingent liquidity purposes and will have an agreement with the regulator to share losses to provide further downside protection against potential credit losses, it added.
SVB was the largest bank since the 2008 financial crisis to collapse when California regulators closed the bank on March 10 which sparked massive market disruption and heightened stresses across the banking sector globally.
“The move is positive for financial stability and the venture capital industry,” said Gary Ng, senior economist at Natixis Hong Kong, though he added was not completely clear whether SVB’s role in the venture capital industry would be carried over by the new entity going forward.
Based in Santa Clara, SVB was ranked as the 16th biggest lender in the U.S. at the end of last year, with about $209 billion in assets.
The FDIC said the purchase of about $72 billion of SVB’s assets came at a discount of $16.5 billion.
“The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership,” it said.
Approximately $90 billion in securities and other assets from SVB will remain in receivership for disposal, the regulator added.
From Monday, SVB’s 17 former branches will begin operating as Silicon Valley Bank, a division of First Citizens Bank.
First Citizens has around $109 billion in assets and total deposits of $89.4 billion.
