First Citizens BancShares of Raleigh, N.C. has agreed to buy the commercial banking business of Silicon Valley Bank, which recently collapsed and was seized by the U.S. government.
Why it matters: This is a step toward stabilizing America's regional banking sector, after a month of tumult.
Details: SVB's 17 branches will reopen under the First Citizens brand on Monday, and all SVB depositors will become depositors of First Citizens, according to a Federal Deposit Insurance Corporation (FDIC) press release.
What's included: First Citizens will assume $56.5 billion of deposits and $72.1 billion of loans from the Federal Deposit Insurance Corp. (FDIC), the latter of which came with a $16.5 billion discount.
- The Raleigh, North Carolina-based bank also entered into a loss-share agreement with the FDIC, of up to 50% on loan losses in excess of $5 billion.
- FDIC estimates that SVB will cost up to a $20 billion loss from its Deposit Insurance Fund (which is backed by insured banks, not taxpayers). FDIC received equity appreciation rights in First Citizens with a potential value of up to $500 million (payable in cash) and exercisable until April 14, 2023.
What's not included: SVB's securities business and its venture capital investment portfolio.
- Overall, the FDIC still retains around $90 billion of SVB assets, most of which is its long-dated securities portfolio.
Investor reax: First Citizens shares climbed more than 15% in Monday's premarket trading.
Backstory: First Citizens came into the year as America's 30th largest bank and now, it is poised to absorb much of an institution that had been America's 16th largest bank.
- It's also a bit of FDIC full circle for First Citizens. Last year it bought CIT, which in 2015 bought OneWest, which in 2009 bought the assets of IndyMac from the FDIC.
The bottom line: First Citizens came into the year as America's 30th largest bank and now, it is poised to absorb an institution that had been America's 16th largest bank.
Editor's note: This story has been corrected to say that SVB's private banking business is included in the transaction.
