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FutureStarrFirst Citizens to Acquire Silicon Valley Bank
North Carolina-based First Citizens Bank & Trust announced on Sunday its plans to purchase Silicon Valley Bank, which collapsed earlier this month. For $119 billion, they plan on taking on all deposits and loans related to SVB.
SVB, the largest US bank to go bust in more than a decade, sent shockwaves through the financial world when investors and depositors withdrew money from its California-based venture lender. It prompted a rescue deal for troubled Swiss giant Credit Suisse as well.
On Monday, the Federal Deposit Insurance Corporation announced a deal to purchase most of the deposits and loans of Silicon Valley Bank, the tech lender that failed earlier this month. This announcement may provide some much-needed peace of mind after this week saw the second-largest bank failure in history.
According to a statement from the FDIC, First Citizens has agreed to purchase $72 billion worth of SVB assets and grant it equity appreciation rights worth up to $500 million. This agreement will enable the new bank to offer customers a full range of services and allow 17 former SVB branches in California and Massachusetts to reopen as First Citizens branches on Monday morning, according to the regulator.
The FDIC also confirmed its standard insurance limit of $250,000. All insured deposits from the former institution will be transferred to the new one, while uninsured depositors who remain will receive an advance dividend, CNBC reported.
On Thursday, SVB experienced one of its most turbulent days when many companies and investors started pulling their funds out of the bank. SVB had a dominant market share in venture capital-backed firms which have been hit hard by rising interest rates and reduced investor interest in riskier tech assets.
These companies require a lot of cash that needs to be spent quickly, and the bank has long been known for helping them do that. Its SVB Cash Sweep product allows customers to invest idle funds into money market funds which it claims have been thoroughly researched.
The bank is known for requiring founders to sell small ownership stakes in exchange for better credit terms, and profits on equity warrants have outpaced losses on early-stage loans over the past 10 years. Its startup banking team has dedicated itself exclusively to these transactions which can prove highly lucrative when companies go public.
Silicon Valley Bank has become a major financial conduit for venture capital-backed startups and other tech companies, so its failure could present challenges to those businesses that depend on it. According to TheStreet, some distressed venture-backed firms are being instructed by their venture capitalists to withdraw at least two months' worth of "burn" cash from the bank before seeking alternative sources, according to reports.
The news of Silicon Valley Bank's demise has sent shockwaves through the financial community. The failure of this Santa Clara, California-based lender has caused investors and companies to fear other banks could follow in its footsteps.
The FDIC has taken control of the bank, which experienced a run on deposits that left it bankrupt. Acting as receiver, the agency will liquidate assets to pay back creditors and depositors alike.
Silicon Valley Bank, whose primary clientele is tech startups and venture capital firms, had $209 billion in assets as of last year, the FDIC reported. This failure is part of a broader trend caused by the Federal Reserve's aggressive interest rate hikes over the past year that forced banks to sell long-dated Treasuries they held at low interest rates and take on riskier loans that have since lost value.
When a bank fails, the FDIC is responsible for safeguarding customer deposits up to $250,000. Furthermore, they coordinate cleanup efforts and find another bank to take over any remaining assets.
Bloomberg notes that one option for the FDIC is to utilize its systemic risk exception tool to backstop uninsured deposits, but this would need to be done in collaboration with Treasury Secretary Janet Yellen and the Fed.
Another possible option is selling some of SVB's assets to raise funds more rapidly. However, this process could take some time and may not yield all of the depositors' money back.
How quickly SVB customers receive their money depends on how quickly the FDIC sells its assets and how much it receives as a payout from another bank.
The FDIC has stated it will return between 30% and 50% of uninsured deposits to SVB customers within a week, with possible additional dividend payments as it sells its assets. This process is anticipated to take several weeks; however, some depositors can sell their claims at a discount to other financial institutions for a faster turnaround.
The Federal Deposit Insurance Corporation (FDIC) announced late Sunday that Silicon Valley Bank has been acquired by North Carolina-based First Citizens Bank. As part of the deal, SVB's deposits and loans will be acquired for $72 billion by First Citizens, according to an announcement from the FDIC late Sunday evening.
The sale is intended to restore stability to financial markets that had become turbulent due to fears of a credit crunch and systemic bank stress. It also gives depositors access to their money, while giving the FDIC equity appreciation rights in Raleigh-headquartered First Citizens BancShares Inc.
On April 12th, Silicon Valley Bank collapsed in what is believed to be the second-largest US bank failure since 2008. As depositors fled their money and investors lost faith in the lender, Silicon Valley Bank ultimately became unprofitable.
In an effort to safeguard depositors, the FDIC created a "bridge bank" and transferred all insured deposits from SVB to it. Furthermore, they announced they had sold all SVB assets to First Citizens, who will reopen 17 former SVB branches on Monday.
Though this may appear like a good deal for depositors, there are several other factors to take into account in the transaction. First Citizens has agreed to pay the Federal Deposit Insurance Corporation (FDIC) an administrative premium of 1% on all deposits made. Furthermore, the FDIC has received equity appreciation rights in First Citizens BancShares stock that could potentially be worth up to $500 million.
Furthermore, the FDIC has a policy of guaranteeing all depositors access their funds promptly after a bank fails. As a public corporation created by Congress to maintain stability and public confidence in America's banking system, this agency strives to guarantee this is achieved.
As a federal agency, the FDIC's mission is to preserve financial stability and safeguard depositors whose funds are insured by them. To accomplish this goal, they provide various tools and resources for consumers, bankers, analysts, and other stakeholders.
Explore our collection of research tools, quarterly banking profiles, working papers and state banking performance data. Plus we provide regular updates on our activities and important announcements. Get to know more about the FDIC: its leadership structure, career opportunities available there and more.
As regulators take action to safeguard depositors in the wake of a massive bank failure, FDIC news comes as depositors are assured that their money is safe.
Last week, Silicon Valley Bank's demise sent shockwaves through the tech sector as investors and tech companies alike withdrawn billions of dollars from accounts. As a result, its shares dropped sharply and some traditional banks began receiving inquiries from businesses whose accounts had been affected.
On Friday, regulators took control of SVB and ordered all customers to freeze their accounts. They also warned about withdrawal limits up to $250,000. This prompted many clients to switch banks, including some smaller local ones in the Boston area.
Regulators closed SVB, the largest US bank failure since 2008's financial crisis, and placed it into receivership. It had lost billions on securities sales as customers began withdrawing money from their accounts as interest rates rose.
Around the US, several smaller, publicly traded banks began getting calls from business customers who wanted to transfer their funds to a more stable institution. Salem Five Bank in Massachusetts reported having some inquiries from SVB customers.
First Citizens, a North Carolina-based bank, has agreed to purchase all SVB deposits and loans at a discount of $16.5 billion. As part of their acquisition plan, First Citizens plans on opening 17 former SVB branches as First Citizens locations on Monday.
The acquisition is a significant victory for the FDIC, who will be able to reduce some of their post-failure management workload. They have been steadily decreasing insured bank failure rates over recent years and industry indicators indicate an increasing decrease in these duties going forward.
The FDIC expects this decision to save them a considerable amount of money in the long run, since they won't need to continue paying employees during a receivership. That could amount to around $10 million annually in staffing expenses for them, according to the regulator.
In addition to being an important win for regulators, this is also good news for depositors affected by SVB. The Federal Deposit Insurance Corporation was informed of the acquisition and plans to begin collecting payments from the new owner as early as this week.