First Citizens to buy Silicon Valley Bank

The collapsed Silicon Valley Bank in California. Photo: Reuters

Daniel Taub

First Citizens BancShares Inc. agreed to buy Silicon Valley Bank which was seized by regulators following a run on the lender.

The Raleigh, North Carolina-based bank entered into a purchase and assumption agreement for all deposits and loans of SVB, according to a statement from the Federal Deposit Insurance Corp. The deal includes the purchase of about $72bn SVB assets at a discount of $16.5bn.

About $90bn in securities and other assets will remain in the receivership for disposition by the FDIC, while the Federal institution also got equity appreciation rights in First Citizens worth as much as $500m. The estimated cost of the failure to the Deposit Insurance Fund is about $20bn, though the exact extent will be determined when receivership is terminated, according to the statement.

"This has been a remarkable transaction in partnership with the FDIC that should instil confidence in the banking system," Frank Holding Jr., chief executive officer of First Citizens, said in a statement.

Silicon Valley Bank abruptly became the biggest US lender to fail in more than a decade earlier this month, unravelling in less than 48 hours after outlining a plan to shore up capital. The bank took a huge loss on sales of its securities amid rising interest rates, unnerving investors and depositors who rapidly began pulling their money. On March 9 alone, investors and depositors tried to withdraw about $42bn.

Regulators had been racing to lock down a deal for all or parts of the bank in a bid to cover the uninsured deposits of its startup customers, but an earlier auction attempt passed without a buyer.

Then the FDIC extended the bidding process after receiving "substantial interest" from multiple potential acquirers. To simplify the process and expand the pool of bidders, the FDIC allowed parties to submit separate offers for the Silicon Valley Private Bank subsidiary and Silicon Valley Bridge Bank NA, the firm created by the FDIC after SVB went into receivership.

US authorities had taken extraordinary measures to shore up confidence in the financial system after the bank's collapse, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the entire nation's deposits.

Shares of SVB had plummeted after the Santa Clara, California-based company outlined plans for an equity offering, disclosed it suffered a $1.8bn loss on the sale of securities and a slowdown in funding at the venture capital-backed firms it serves. The bank was forced to abandon its plan to raise capital as funds including Founders Fund, Coatue Management, Union Square Ventures and Founder Collective began advising their portfolio companies to move money out of SVB.

First Citizens previously submitted a bid for SVB immediately after it collapsed, according to people familiar with the matter.

Its interest in an acquisition has stumped some observers, who questioned whether First Citizens has the wherewithal to take on the second-largest FDIC-assisted bank failure in US history. First Citizens, based in Raleigh, North Carolina, was the 30th largest commercial bank in the US by assets at the end of 2022, according to Federal Reserve data.

But the bank has experience buying broken rivals. It acquired more than 20 FDIC-assisted banks since 2009, striking a series of deals after the financial crisis from Washington to Wisconsin to Pennsylvania.

First Citizens also completed the acquisition of CIT Group Inc. last year in a deal valued at more than $2bn.